NY cotton futures remain in a sideways trend

15 Oct '11

4 min read

Therefore, if the crisis in Europe does not materialize or investors get the perception that things are manageable, some of this sidelined money is likely to come back into play. We got a glimpse of these dynamics earlier this week, after Mrs. Merkel and Mr. Sarkozy assured the markets that they would build a firewall around the banking system, which prompted a mini-rally in stocks and commodities.

So where do we go from here? We are not sure that the Chinese Reserve or monetary considerations are going to be enough to withstand the harvest pressure that is going to build over the coming weeks. There is still some more weather to negotiate as not all crops are safely in just yet, but if and when they are, we expect suppliers to become quite aggressive in trying to find a home for their cotton.

Unlike last season, when mills were chasing after cotton, we are looking at the opposite scenario this time around. China has saved the day so far, but once its domestic crop is in and buying against pending import quotas starts to fade, the market will likely face a tougher time finding support.

From a technical point of view the market is still firmly entrenched in a sideways trend, with no discernable momentum to suggest a breakout to either side. However, we feel that over the coming months the path of least resistance is down and we also believe that the futures market will eventually swing back from inversion to contango.

Plexus Cotton Limited

More Textiles News - United States Of America...