SUGAR MARKET OVERVIEW
The slide in sugar has been relentless, with Oct falling 28% with almost no pullback. The Oct/Mar spread has weakened to –260. Brazil physical premiums are now well and truly positive, showing the poor quality Thai overhang is driving the October contract lower. The specs added only 20k to their shorts, but we witnessed 4 more days of unrelenting selling after this. So the market will be expecting a much larger short position, when next reported on Saturday.
To this point in me, Brazilian production has been racing along, with few signs of ethanol wash outs and a lower agricultural yield. At some point in me, the short tail has to kick in, and a lower mix number combined with a lower yield may be enough to rattle some of the shorts and get a squeeze higher. We have covered back any additional production sold earlier into last week’s drive lower. Given the large volumes of sugar being rolled forward, we will be looking for any spike to sell into, postulating higher prices will find large enough selling resistance, to stop any significant rally.
CURRENCY MARKET OVERVIEW
The stronger USD finally caught up with the AUD last week, tes ng the long held 9200 support level and breaking lower. The traditional drivers of the currency (Iron Ore price, Chinese growth) as previously noted have been suggesting a move lower and finally this has come to fruition. Interestingly, the jobs number on Thursday was astonishingly strong. Albeit only part-time workers and pay back from a weak number the previous month; and yet the currency could only manage an intraday spike. Selling oﬀ on good news is a very bearish sign.
USD/BRL has broken higher through technical resistance at 2.30 This is in line with the broader strong USD theme. EUR and GBP still look vulnerable too. This week we look to the FOMC for new guidance about interest rate direction following the conclusion of the Taper programme. There is potential for disappointment and a short term USD sell oﬀ, but the trend is clearly higher for the USD at the moment.