Author: Ralph Shell - Graduated from a small Ohio liberal arts college. Graduate studies in economics and history at Duke University. Ten years experience trading cash commodities in domestic and export markets. Former commodity analyst with Merrill Lynch in Chicago. Member of and floor trader at the Chicago Board of Trade for 18 years.

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Data and Analysis for Most Recent Release

Legend:	Net Long	Net Short	Position Change

Overview: The total open interest (OI) in the latest period actually dimished by 5,795 contracts during the period ending August 24, 2010.  The major drop in the OI came in the A$, as the period encompassed the three days before and the two days after the election.  There, a hung parliament, the first one in 70 years, caused some confusion.  Open interest in the yen, euro, franc and the C$ all increased modestly.  The C$ increase was surprising as that market was selling off.

The composite spec position versus the USD showed a decrease in the long something else and short the USD from 159,403, to 129,687 contracts.  Most of this change came from reduction in spec longs in the C$ and the A$.  There was a modest build up in short euros which by default meant the spec was getting longer in the USD.

During the period, as the yen made a new fifteen year high versus the USD, the pundits kept saying the buying was coming from those interested in the yen as a safe haven.  The COT report reveals the opposite as the small spec was short the yen and increased his short positions.

The British pound has the second biggest open interest but the jury is really hung in this one.  All major goups have large positions but they are all almost even.  No consensus what to do.

Small specs have the biggest long percentage of the market in the C$, 35.6%, and in the SF with 27.4%.  On the short side the biggest share of the market is in the yen 23.4%, followed by the euro at 18.8%  The large specs always have the biggest share of the market in the the NZ$, 73.7% and the DI, 72.9% but they are also in the A$ to the amount of 50.9%.  On the short side, the biggest per cent is 22.8% in the biggest market, the euro. 

			(1) Large Traders		(2) Small Traders		(3) Commercial
		Total OI	Long	Short	Long	Short	Long	Short
USD Index	Contracts:	29,335	21,388	5,691	5,459	2,225	1,727	20,659
	Change:	-2,957	-4,133	-1,085	1,132	1	214	-1,704
	% Open Interest:		72.9	19.4	18.6	7.6	5.9	70.4
	Analysis:	Most of the activity was the large spec reducing positions, both longs and shorts.  At period's end, the large spec was a 3.7 to 1 long.  Small specs are starting to play a little bigger in this market  and were a little over a 2 to 1 long.
EUR	Contracts:	310,837	53,286	70,880	55,915	58,367	159,143	139,096
	Change:	4,082	-7,026	-909	-1,446	1,592	7,119	-2,037
	% Open Interest:		17.1	22.8	18.0	18.8	51.2	44.7
	Analysis:	This, the largest currency futures contract changed little during the week. Spreading  increased 5,436 contracts to 13.7% of the OI. Small specs did flip to the short side of the euro, but in a minor way that suggests they are still indecisive, and they are very evenly balanced long to short.  The large specs added to their net short position by liquidating longs.
GBP	Contracts:	157,689	29,312	31,942	26,056	25,703	92,366	90,089
	Change:	-1,467	-1,860	-3,038	-1,445	473	1,851	1,111
	% Open Interest:		18.6	20.3	16.5	16.3	58.6	57.1
	Analysis:	The OI tapered off a little in an indecisive trade.  The feature in this currency is a lack of commitment.  All groups are almost even in their net position.  The summer run up was in conjunction with speculative short covering, and when they were covered the market backed off. At 157, the total OI is fairly large but evenly balanced, so unless some group gets a good idea this market may churn for a while.  For the option players, this means sell the straddles and strangles.
JPY	Contracts:	159,308	62,603	11,874	34,164	37,319	52,523	100,097
	Change:	7,054	-696	-731	3,328	2,946	1,465	1,882
	% Open Interest:		39.3	7.5	21.4	23.4	33.0	62.8
	Analysis:	The large specs were to first to jump aboard the long side of the yen, getting long in front of the  safe haven specs who reportedly bought the yen.  The COT futures exposes the fallacy of the pundits attributing the yen strength to that type of buying.  Small specs in the futures market are short the yen, and added more short, and long too, during the period.  There was in increase in option activity with spreading increasing by 2,957 to 6.3% of the OI during the week.
CHF	Contracts:	62,080	20,245	7,695	17,002	10,606	22,835	41,782
	Change:	3,337	2,677	868	664	-284	4	2,762
	% Open Interest:		32.6	12.4	27.4	17.1	36.8	67.3
	Analysis:	There was only modest movement in the SF during the week.  The large specs remain a 2.6 to 1 long and the small spec is about 1.5 to 1 long.  Both size specs added to their positions modestly.
CAD	Contracts:	110,969	27,254	8,189	39,473	20,455	37,841	75,925
	Change:	3,756	-7,634	3,629	-797	1,793	11,256	-2,596
	% Open Interest:		24.6	7.4	35.6	18.4	34.1	68.4
	Analysis:	Both sized specs decreased their long during the period, but the large spec remains a little better than a 3 to 1 long and the small specs, who own a big part of the total OI in the C$ remain about a 2 to 1 long.  The loonie value has been penalized because of the sour economic news reported by the United States.
NZD	Contracts:	20,271	14,931	4,248	3,343	2,225	1,997	13,798
	Change:	-3,356	-2,664	-1,208	540	460	-1,232	-2,608
	% Open Interest:		73.7	21.0	16.5	11.0	9.9	68.1
	Analysis:	The OI went down by 16% in the week as the large specs reduced their participation.  There are 10 large traders that control 73.7% of the total OI and 8 traders that have 21% of the markets short.  These were the people reducing their position during the week.  Small specs increased their positions.
AUD	Contracts:	115,398	58,788	11,810	24,686	17,127	27,347	81,884
	Change:	-13,244	-12,455	-1,641	-4,649	-777	2,739	-11,946
	% Open Interest:		50.9	10.2	21.4	14.8	23.7	71.0
	Analysis:	The OI was down 11% during the period when the elections was held and the results determined.  Large specs made a big market exit but still remained about a 5 to 1 long, while the small specs were also large sellers of their longs.  While the hung parliament remains the market did recover smartly after the cut off t the end of this period.

*Source: CFTC (Commitments of Traders with Delta-adjusted Options and Futures Combined) Actual Report

Commitment of Trader (COT) Report: Every Friday the CFTC releases data about futures/options trading activity by market segment in various markets including currencies.  Positions for each currency are classified into 3 groups: large speculators, small speculators, and commercial traders.  If interpreted correctly this data can be useful in forecasting price trends in the spot forex market.  The table below contains a condensed version of currency trader?s collective market votes.  Interpretation of this data is definitely an art rather than a science.  With that caveat, you may view the latest COT analysis for each currency in the analysis fields of the table below.  *See below for definitions and additional information about the COT Report and analysis.

The CFTC breaks open futures contracts into reportable positions and non reportable positions.  Reportable positions are further broken down into commercial and non-commercial positions.  Though commercial reportable positions may be a very large portion of the open interest, the commercials activity in the futures market is an adjunct to other business activity.  There may indeed be speculating in some cases, but they may also be responding to many factors such as manufacturing, purchase and sales of products, or investment overseas, or repatriation of capital or profits from abroad.  Or they may be banks hedging their overseas loans or currency positions.  As hedgers they may be more concerned with futures as an insurance policy than a profit center.

While price movement is not the major concern of the commercial user, it is the lifeblood of the large and small trader.  It is for that reason that we analyze the activities of the speculators in detail and ignore the commercials positions.

Reportable positions are usually held by the wealthy experienced successful traders and or a combine of participants.  That does not mean that their every trade is a winner. However to hold a reportable currency position is not for the faint of heart and requires a well funded account and probably a friendly banker.  Non reportable positions are those of the smaller trader.  Conventional wisdom says the little guy is generally on the losing side of the market.  Naturally there are exceptions to all rules, but both groups are responsive to price action.

How to use COT Report:  There are 3 main ways the COT report is used to forecast price trends in the spot forex market.

1)  Extreme Positions:  If everyone is already long or short it is a strong indication price may reverse because there is no one left for buyers to buy from and no one left for sellers to sell to.

2)  Changes in Market Positions: When large speculators change their position and go from net long to net short or vice versa, there typically is a good reason they do this.

3)  Changes in Open Interest: Rising or falling open interest may reflect directional commitment or lack thereof and therefore indicate strength or potential reversal of a particular price trend.

Terminology & Types of Traders:

a)  Non-Commercial Reportable Traders: (Large Traders) Large speculators, also referred to as large spec, whose position size requires reporting to the CFTC

b)  Nonreportable Traders: (Small Traders) Typically smaller speculators, also referred to as small spec, whose position size does not require reporting to the CFTC.

c)  Commercial Reportable Traders: (Commercial Traders) Traders engaged in business activities hedged by the use of the futures or option markets.

d)  Open Interest (OI):  Open interest, also referred to as OI for short, is a trade, long or short, that has not yet been offset or closed out.  For every long, there is a short.  Every buyer must find the price at which a seller will sell.  Day traders who get in and out on the same day do not add to the OI.

e)  Net Short and Net Long: In the case of Net Long, a particular market segment (i.e. large speculators) has more long positions with open interest than short positions.  The opposite applies to Net Short.

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