The collapse in Cotton prices has been the talk of the (Soft Commodity) town past few days. The floor seems to be around the October/November 2021 lows around 103.50. If Cotton can close above 105.31 today it has formed a Bullish Engulfing bottom and reversal candle.
If that scenario plays out, we could see a nice rebound possibly to 117-123.
Out Commodities expert, Ole Hansen explains the reason behind the price collapse in Cotton:
“Cotton, a recession-shy contract, took a major hit last week from raised concerns about an economic slowdown, primarily in China, a major consumer of cotton, but also the wider world as central banks accelerate their efforts to bring down inflation by forcing down activity through higher interest rates. The fiber together with copper are often viewed as gauges for the health of the Chinese and global economy, and recently both have been flashing red alert.
However, after hitting a nine-month low, some 32% below the May peak, the market is showing signs of stabilizing. Driven by a combination of prices hitting deeply oversold levels, the speculative froth being sharply reduced, China softening its strict Covid rules and not least a worsening outlook for US crops after the percentage of crops being rated good to excellent dropped to just 37% versus 52% a year ago. .”