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Further interest rate cut to likely support inflation
09
Jan '08
Beginning of 2008 has seen sharp losses in the stock market. Disappointing numbers on employment and manufacturing have contributed to this loss. This week, again, gave the market a weaker home sales report, which is, much weaker than it has been expected.

Dow Jones ended the trading day sharply lower by falling close to 240 points. There are rising hopes in the market that Fed will continue to cut down interest rate. However, the overall confidence level is low and recession fears have prevented stock market to recover its loss.

The possible further interest rate cut will likely support inflation and push the general commodities prices up. As cotton price is lagging compared to other commodities, funds have been increasing their positions since the beginning of the year. It's not hard to see why market is expecting higher prices.

Wednesday session climbed some 50 points higher, supported by the broad higher prices in outside commodities market. Trading was active with some estimated 35,000 contracts in futures and 38,000 contracts in options. Open interest was increased by over 3,400 contracts Monday to reach the current total at 249,072. Specs are at 27.1% long and with potential to
go further longer.

Looking at the chart, we are sticking to the upside trend line and have broken through the trading range established during the last four sessions. March contract successfully broke the 69 cent resistance level that has proven firm lately. The next run will be the 70 cent level from last November.

RSI has grinded above 70% after the two consecutive up trading days. As demand from foreign countries is not rolling in, Thursday's export report is looking sluggish. Though fundamentals don't justify current cotton prices, outside commodities market keep posting a pressure for cotton to follow. Corn and soybeans made a new record high today, as well as the gold prices.

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