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Cotton trades in a narrow range on Monday
12
Aug '08
Cotton fell back into a narrow trading range on light volume. We spent most of the day near unchanged after setting the high early in the session @ 69.50 close to when oil set its high based on fear of the war in Georgia. However, this bad news could not keep the newly resurrected U.S. dollar from climbing higher again today at the expense of the Euro.

There seems to be a change in international sentiment which is bearish for commodities as most people tried to square up positions going into tomorrows USDA report. Futures volume was under 10,000 contracts and options were just over 10,000 as open interest continues to be on the defensive.

We see the specs (page 2 in attached PDF) decreased their long position from .9% last week to a negative 1.6%. We made a run at the recent lows today, but found support at 68.54 based on a late afternoon rebound in oil.

The USD however closed at the highs and we are expecting a bearish USDA report tomorrow as the crop could have grown slightly and consumption starts to reflect realistic levels. We had some decerts on Thursday and Friday of a total 70,000 bales which was friendly, but the specs continue to add to the short side which keeps the market in a sell rally mode.

Technicals continue to look negative as we broke the support of the intraday trading range on Monday at 69 cents. Baring any surprises on the USDA report tomorrow, we expect to retest the lows at 68.20 and possibly lower. Grains bounced back a little bit today.

We could get a few bounces on some over sold technicals down the road, but based on the performance of the dollar recently, this correction in commodities feels like it may have started a long term move downward. Cotton did not go up as much as other commodities so we expect the downside in cotton at 65 cents in the short term.

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