Cotton ekes out gains after Fed decides to taper


* Fed signals U.S. economy continues steady recovery

* Volumes low, prices trade in tight range

* Traders watching for weekly export sales data

NEW YORK, Dec 18 (Reuters) – ICE cotton prices eked out small gains on Wednesday after the Federal Reserve announced it will rein in its massive U.S. stimulus program, signaling its confidence in the economy and boosting hopes for improving retail demand.

The most-active March cotton contract on ICE Futures U.S. settled at 83.0 cents per lb, up 0.05 cent, or 0.1 percent after trading in a tight 0.70-cent range on the day.

Volumes were low, with just 6,004 lots of March contracts changing hands.

Cotton held onto early gains after the Fed said it would scale back economic stimulus. Wall Street stocks rallied and the dollar rose, rebounding from a quick drop after the central bank’s announcement.

Growing confidence in the U.S. economy will fuel hopes about growing demand forapparel.

Even so, any pressure on emerging market currencies resulting from the tapering could “change the dynamics of Pakistani imports and Indian exports,” said INTL FCStone analysts said.

That would make cotton grown in the United States, the world’s biggest exporter, even less competitive on the export market, traders warned.

Technically, fibers remain close to being overbought, with a relative strength index reading of 65, which leaves the market vulnerable to a correction lower.

Traders were also bracing for weekly export sales due on Thursday, which will give a glimpse into how mill demand responded to last week’s move higher.

“(Chinese) reserve purchases are still humming along, but mills are showing a growing reluctance to buy,” said INTL FCStone analysts. (Reporting by Josephine Mason; Editing by David Gregorio)

Source: Reuters