Cotton has fallen to a 7-week low after hitting a 16 month high on the first trading day of the year. H'10 has been under pressure as we broke a key support line @ 73.50, but today we also broke support at 73.00 and 72.80. We managed to close off the lows, but technically some major damage has been done to the chart as the USD remains strong and the commodity complex is under pressure. China announced a tightening of their monetary policy today which is also a factor that could lead to more profit taking in commodities.

Export sales were descent, but from what we have heard these are forward sales and possible consignment stocks as well. We may see a test of the 70 cent level as the next significant level of support as index funds are in the process of rebalancing large volumes of grains, energy and metals. Cotton open interest has remained stable as cert stocks continue to grow and spreads widen close to full carry between H/K'10. At the moment, the momentum has turned south and there could be more downside testing before we uncover strong support.