After a brief period of stabilization and rebound in early July, ICE cotton futures started to dive sharply again this week. The main 12 contract broke through the integer marks such as 90 cents/pound and 88 cents/pound without any suspense. Funds and bulls basically did not form. How much resistance there is, panic reigns supreme.
An international cotton trader said that although U.S. cotton harvest area, output and export volume have been reduced, and U.S. cotton signing momentum for next year is strong, these fundamental factors have failed to support ICE futures. Faced with the fierce and rampant “chasing the short and killing the long” force and the negative external news, most cotton merchants and institutions dare not say the bottom lightly. The main contract is likely to exceed 85 cents/pound and test 80 cents/pound. Support level.
Why have ICE futures experienced sharp collapses one after another? The author believes that the problem lies in the peripheral market:
First, due to the strong performance of U.S. non-farm data and the current U.S. inflation rate approaching a historical high of 9%, the probability that the Federal Reserve will raise interest rates by 75 basis points in July reaches 90.6%.
Second, the U.S. dollar index rose strongly, reaching a maximum of 108.56 on July 12, setting a new high in the past 20 years. This caused the global commodity futures market to become “turbulent” and began to fall sharply.
Third, the re-emergence of the epidemic in Europe and the United States has intensified investors’ panic over a slowdown in the global economy and declining demand for goods. At a press conference on July 12, the White House New Coronavirus Response Team stated that the highly contagious new coronavirus Omicron strain BA.5 subtype may trigger a new wave of epidemics across the United States. Driven by the BA.4 and BA.5 Omicron subtypes, Europe has become the epicenter of a new wave of epidemics.
Fourth, the decline in global cotton consumption is spreading from China, India, Pakistan and other countries, and the forecasts of USDA, ICAC and other institutions may be optimistic.
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