The U.S. dollar index ended a three-day winning streak on June 25, providing a direct boost to dollar-denominated international cotton prices. ICE cotton futures for December initially fell to a two-week low of 76.09 cents per pound but rebounded on a weaker dollar and bargain buying, settling 0.71 cent higher at 76.97 cents per pound, a gain of 0.93%.
Short-Term Drivers: Dual Support from Dollar and Oil
A softer dollar makes U.S. cotton more affordable for overseas buyers holding non-dollar currencies, a key factor behind the bounce. Meanwhile, crude oil prices rose over 2% as Middle East tensions escalated after a vessel was attacked near Oman, prompting the International Maritime Organization to suspend evacuations in the Strait of Hormuz. Higher oil prices improve cotton's competitiveness against polyester, which is derived from crude oil.
Technical and Sentiment Factors: Speculative Positioning
The rebound was largely technical. A senior vice president at StoneX noted that after heavy selling the previous day, speculative funds found strong support near 76 cents per pound, attracting buyers. This suggests the market lacks clear directional momentum and is driven by sentiment and technical levels. Textile companies should view this rebound cautiously rather than as a trend reversal.
Demand Concerns: Export Sales Plunge 53%
Contrasting with the price bounce, weekly U.S. cotton export sales data was weak. For the week ending June 18, current-crop net sales were 83,864 bales, down 53% from the prior week and 61% below the four-week average. Next-crop sales added 67,089 bales, bringing the total to 150,953 bales. Although shipments rose 20% to 300,155 bales, shipments to China were only 12,248 bales. The data indicates global textile demand remains sluggish.
Spot Market Under Pressure
The futures rebound did not lift spot prices. The Cotlook A index fell 250 points to 85.05 cents per pound on June 25. The divergence between futures and spot confirms that the rally is financially driven rather than by physical buying. Mills should remain cautious about chasing higher prices.
Outlook: Mixed Signals
ICE cotton has found technical support near 76 cents per pound, but resistance lies at 78-80 cents. Key factors ahead include the dollar's trajectory, Middle East developments, and the upcoming USDA acreage report. The pace of buying by China, Vietnam, and other major consumers will determine whether the rally can sustain.