Another crazy day for cotton as the outside markets dictates the direction. European central banks made big cuts of interest rates today that were larger than expected from 75 points to 175 points and now all European banks are lending at 2.5% or lower. These are significant cuts from 4-5% that was in place a couple of months ago. This did weigh on the dollar despite the weakness in commodities.
Treasuries continue to take advantage of the housing crisis concerns as Bernanke and others keep talking about lowering long term interest rates. Volume was average today with only 13,000 futures and 9,000 options as we look to be building a trading range for the H'09 with a high at 48.
Sales and shipments were very disappointing today, but the biggest factor was the weakness in outside markets with energy leading the downside move. The old rule that commodities suffer in recessions will keep us in a downtrend much longer. Especially when foreclosure problems and unemployment look like they will get worse before they get better.. The Federal Reserve looks like they are determined to throw as much money at the problems as possible with the current discount rate essentially at 0 for bank to bank lending.
This will eventually lead to inflation concerns down the road which will require interest rate hikes, but that may be 18-24 months from now.
Technically the dollar is establishing a sideways trading range between 85/88. After the ECB announcement, the dollar did test the highs near 88, but eventually came down hard. The stock market also was weak today as we had the big 3 automakers on Capitol Hill who were not giving very optimistic testimony about the future.
Cotton is starting to build a sideways trading channel as we may be heading back to test the lows before moving higher again. Outside markets are still key and look bearish.
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