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ECOM daily cotton markets recap

May '07
After a small correction yesterday, the market was trading lower electronically by 30/40 pts this morning and proceeded to fall as much as 122 pts to reach 49.10 after failing on Tuesday to break 50.75.

The market is starting to look like it is getting into spread mode as N'07 volatility is falling fast and the spread has widened out over 100 points in the last two weeks (N/Z @ 528 today).

With only 21 trading days left and 127,000 open interest in July, there will be a lot of pressure on N'07 as many feel comfortable to roll out to Dec at better than full carry. With a lot of biz done on N'07 through this sell off near 50 cents and lower, we may run into a slow down in demand after N'07 goes off the board with mills not prepared to buy against Z'07 for 4th quarter shipments until Z'07 returns to the contract lows near 52.00.

There were trade meetings between the U.S. and China today but nothing significant took place. The Yuan has been allowed to float a bit over 1% recently and have been under pressure for quite a while to allow the Yuan to appreciate even more. India has had the biggest swing as the Rupee has appreciated 9% against the Euro and 6% against the dollar in six weeks.

This should discourage mill consumption and export sales with growing inventories that are forced to be sold domestically. The Real in Brazil also has gotten stronger as the weak dollar may encourage export demand.

Technically the market held above the 9 day moving average, but we need to find demand at these levels to hold this upside trend. U.S is still trying to determine how much cotton was redeemed as the majority are estimating as much as 5 million to as low as 2 million may be left in the loan. Obviously, this will have a big impact on how high the market can go in this redemption rally.

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