At this point it is rather difficult to define the current tendency in the market of cotton. Let’s see what is happening in the market through the eyes of the analysts from the Department of Commodity Trading, .
It is reported that the demand is gradually declining as a range of cotton importers are reducing the import of the product. As paradoxical it may seem, the importers purchased the required amount of cotton at high prices when the cotton market was in panic. Now when the prices are declining there are no buyers. So it makes the prices decline further. The only thing that may activate purchases is the droughts in the US and China. As far as we can see, the droughts started 2 weeks ago while the market started reacting only at the end of last week.
In its turn, during this season such a decline (the main reason is the decline in China’s exports) has already reduced the deficit of cotton by 24%. At the same time China is still buying cotton at relatively high purchasing prices and is not going to reduce them.
In other words, the high purchasing prices prevent the prices from falling further. It is obvious that when China has completed the program of cotton purchases and once there are favorable production forecasts for the season of 2011/2012, cotton prices will fall under severe pressure. However this is a long-term issue. The current situation is mainly conditioned by the fact that cotton importers show no demand.
Technically, the situation looks as follows: on the Weekly chart we can see the price touching a big-scale volume level (140-1450 and rebounding from it. The Daily chart shows that the price is moving around the 38,2% Fibo level.
Moreover, there is no sufficient demand, which may prompt a correction, especially as the market is oversold.
