ICE cotton fell to a two-week low on Tuesday and suffered its largest single-session loss in six weeks, as speculators who fuelled a rally over the past five weeks slowed down buying on indications that momentum has cooled. The most-active May cotton contract on ICE Futures US fell 1.22 cent, or 1.9 percent, to settle at 63.63 cents a lb, after dipping to 63.52 cents a lb, the lowest level since February 17. It was fibre's largest single-session loss since January 20.
It was also second-month fibre's fourth straight session of losses, its longest such streak since July 2014. The drop came as an absence of new buying sent the market into a "vacuum", where light dealings to the downside brought the market price lower, said Peter Egli, director of risk management at British merchant Plexus Cotton Ltd.
"The specs bought an awful lot of cotton the past few weeks. They start to run out of fuel," Egli said. "The momentum is running out a little. They're not chasing the market up." The rally of the past five weeks was largely boosted by investor buying, and as of last Tuesday, speculators had raised their net long position in cotton to the largest level since May of 2014, the most recent US government data show.
The fast pace and large volume of the speculators' purchases has caused them to await further information on market fundamentals, including the results of this week's US export sales report expected on Thursday, before adding further to long positions, Egli said. He added that commercial participants, who have taken the other end of many of speculators' long purchases and raised their gross short to the highest level since May of last year, were waiting for further price drops before buying back their shorts.
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