The cotton market remains locked in its present start-and-stop pattern, awaiting positive definitive news from the U.S.-China trade talks. Very little specific news has been reported from the current talks, and we have not heard the word cotton mentioned one time. Tomorrow, China top negotiator, Liu He, arrives to take charge of the Chinese position. His presence doesn’t necessarily mean a deal is close, although the March 1st deadline comes next week.
To that end, just yesterday President Trump said that March 1 was not a magical date, meaning he is willing to extend the talks provided progress is being made. However, the question is how does one define or measure progress? With Mr. Trump heading to Vietnam next week for another historic meeting with the North Koreans, most likely the decision to extend will come this weekend.
Today, the Federal Reserve will publish minutes from its last meeting. Fed watchers will scourer the text for any clue as to the fate of U.S. interest rates. Higher or lower rates effect the value of the U.S. dollar which effects U.S. agricultural exports.
Technically the cotton market is steeply oversold and that’s an understatement. The most commonly traded indicators are all pointing to extremely bearish levels. Moreover, the Commitments of Traders Report for the week ending January 29 has managed money traders net short some 11,412 contracts, which only pads their already short position. Thus, with the right fundamental incentives, the market could experience a reasonable bounce.
Supporting any sort of recovery rally is the strong seasonal tendency for prices to rally into spring. Yet, we must also realize this particular moment in the life of the cotton market is historic, in that the U.S. has never been embroiled in a trade war with one of its major customers.
For today, support for May Cotton stands at 70.60 cents and 70.00 cents, with resistance coming in at 73.00 cents and 73.60 cents. Overnight volume is estimated at 5,420 contract traded.