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New York cotton futures ended sharply higher on Friday posting a fresh contract high as it roared to a three-year peak supported a bullish USDA data.

Worries about the health of the Pakistani crop and robust Chinese prices propelled NYBOT cotton futures to a fresh contract high ending the week in a very positive note.

The rally began after the last month’s USDA report, indicating sharply lower acreage for cotton this year. The latest weekly USDA also put net upland cotton sales at 206,400 running bales, 3 per cent above the previous week.

The active contract moved perfectly in line with our big picture expectations. Prices have broken out of the range in which it has been moving for the past two years.

As expected support was seen in the 61-62 range and as long 58c holds attempts to decline, a re test of 70c seen in 2004 is on the cards. Initial resistance will at 65c being a psychological resistance level.

Our favoured view now expects a consolidation in the 60-63 range before we see a break higher towards 70c. RSI continues to be overbought and minor correction lower is in the offing.

The averages, in MACD are above the zero line indicating a bullish reversal. Only a cross-over of the averages below the zero line again will now indicate a bearishness.

Prices are above the short-term 8 period and 21 period EMA at 58.60c and 54.21c respectively indicating bullishness again.

Therefore, look for cotton futures to test the resistance levels and correct lower subsequently.

Supports are, at 62, 60.25 and 58.25 Resistances at, 64.50, 65.75 and 66.50 cents respectively.

(The author is the Director of Commtrendz Research and also in the advisory panel of Multi Commodity Exchange of India Ltd (MCX). The views expressed in this column are his own and not that of MCX.

This analysis is based on the historical price movements and there is risk of loss in trading. He can be reached at gnanasekar_thiagarajan@yahoo.com.)

Gnanasekar T.

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