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Have we seen the bottom of cotton?

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Carlsquare
15 Dec 2022 | 2 min read
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It has been a while since stimulus checks encouraged an upgraded wardrobe. With black Friday breaking records, the US adding more jobs than expected and an interest rate hike in line with expectations, it might be time to hit the mall.

Clothing tends to be one of the most popular categories during black Friday, and as such, how the sale performs has a bearing on the more significant cotton market. Although many might have assumed the current economic climate to mute sales in 2022, this year’s black Friday was a record-breaking sale with $9.12 billion in online sales. Although the lipstick effect might not include apparel, the current economic climate appears to not interfere with consumer demand for clothes.

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Source: Adobe Analytics

The biggest cotton exporter in the USA has been facing droughts and struggles, resulting in many crops being abandoned. This struggle in production and uncertain demand from big consumer China has hurt cotton prices. China has started easing restrictions in some parts however, thus igniting faith in a potential rebound in demand. Furthermore, the USA lately reported a higher-than-expected number of jobs added. This news, in tandem with an interest rate increase that is in line with expectations, means that cotton demand might remain strong simultaneously as supply struggles in the top exporter USA.

Cotton Futures Mar23 (USD/bushel), daily one-year price chart

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Source: Infront and Carlsquare. Note: Past performance is not a reliable indicator of future results.

Cotton Futures Mar23 (USD/bushel), weekly two-year price chart

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Source: Barcharts. Note: Past performance is not a reliable indicator of future results.

The full name for abbreviations used in the previous text:

EMA 5 5-day exponential moving average
EMA 9: 9-day exponential moving average
Fibonacci: There are several Fibonacci lines used in technical analysis. Fibonacci numbers are a sequence of numbers in which each successive number is the sum of the two previous numbers.
MA20: 20-day moving average
MA50: 50-day moving average
MA100: 100-day moving average
MA200: 200-day moving average
MACD: Moving average convergence divergence
BB(20,2,0): Bollinger bands is a line used in technical analysis, it is a set of trend lines plotting two standard deviations away from the MA20.

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