COT Report 03 09 2010

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Data and Analysis for Most Recent Release

Legend:	Net Long	Net Short	Position Change

Overview: Data 03 09 2010  The total open interest (OI) continued to build during the period, non uncommon as we approach the expiration of the March contracts.  The total OI was up 39,250 contracts with the biggest surge in the C$, 19.940 contracts, followed by the A$ at 9,886.  The total spec positions short another currency which by default left them long the USD was down to only 12,731 contracts, but with in the total there are some big positions.  Specs are short 80,623 contracts of the euro and 79,989 contracts of the pound, and specs are long 87,729 contracts of the C$ and 78,953 in the A$.  The largest spec biggest positions long are in the DI 68.1%, followed by the NZ$ 54.7%, and the A$ 52.2%.  The large specs biggest short positions are in the pound 45.5% and the euro, 38%.  The small specs biggest longs are in the C$ 29.1%, the A$ 23.1% and the SF 20.9%, while their biggest short positions were in the SF, 25.1% and the C$ 22.6%.  Often when specs or commercials are putting positions on, the market goes one way, and then goes to opposite when positions are liquidated, so we need to be alert to possible liquidation.  The currency with the second largest OI is now the Mexican peso!  The OI increased over 49,000 contracts during the period.

			(1) Large Traders		(2) Small Traders		(3) Commercial
		Total OI	Long	Short	Long	Short	Long	Short
USD Index	Contracts:	59,488	40,524	4,494	5,675	2,443	8,642	47,904
	Change:	1,073	-2,231	-185	347	319	1,813	-205
	% Open Interest:		68.1	7.6	9.5	4.1	14.5	80.5
	Analysis:	There was very little change in the DI during the period.  There are 39 large traders, probably mostly funds that are long 68% of the total OI.  Small traders, not large participants in the DI are also long, but only a 2.3 to 1 ratio.
EUR	Contracts:	280,092	33,235	106,448	42,868	49,938	173,908	93,625
	Change:	-2,364	-3,145	8,442	-9,306	-6,136	29,753	14,995
	% Open Interest:		11.9	38.0	15.3	17.8	62.1	33.4
	Analysis:	The total OI was down, but this does not appear in our numbers.  There is a category called non-commercial spreading where accounts are both long and short, but in different monthly contracts.  This category generally is of little importance to the report but in this period there was a reduction of 19,665 contracts of spread positions.  Since the commercial longs and shorts increased by over 44,000 contracts, it looks like the spreads were shifted to commercial longs and shorts.  The large specs, already big shorts added to positions and are now over a 3 to 1 short.
GBP	Contracts:	162,659	10,924	74,048	19,964	36,826	121,936	41,947
	Change:	7,581	-3,294	-10,960	-5,754	2,270	20,990	20,631
	% Open Interest:		6.7	45.5	12.3	22.6	75.0	25.8
	Analysis:	Likr the euro there was a reduction in spreading by 4,360 contracts, and an increase in commercial positions.  The large specs reduced their massive short position in the pound by over 10,000 contracts, but still remain short 45.5% of the OI.  Small specs reduced their longs and added to their shorts, and are now approaching a 2 to 1 long.
JPY	Contracts:	147,091	51,950	24,374	24,600	28,460	63,390	87,107
	Change:	-1,820	-5,120	2,113	-2,635	-3,522	9,762	3,417
	% Open Interest:		35.3	16.6	16.7	19.3	43.1	59.2
	Analysis:	Large specs, a 2 to 1 long in the yen, are on the opposite side of the small spec who remains a modest short. Usually the small spec positions is in accord with their larger models.  Strong opinions are lacking in the yen as all groups reduced their net positions.
CHF	Contracts:	49,600	10,445	15,872	10,368	12,451	27,705	20,196
	Change:	3,249	-443	-1,781	-1,213	-2,197	6,608	8,930
	% Open Interest:		21.1	32.0	20.9	25.1	55.9	40.7
	Analysis:	The OI was a little higher but there was little feature in this period's trade.  Specs of all sizes remain modest short, though they did reduce their net positions.
CAD	Contracts:	148,480	72,156	10,033	43,281	17,676	27,721	115,450
	Change:	19,940	24,564	2,507	-879	-3,555	437	25,171
	% Open Interest:		48.6	6.8	29.1	11.9	18.7	77.8
	Analysis:	There was a large jump in the OI.  Large specs were aggressive buyers of over 24,000 contracts increasing their long ratio to 7 to 1.  Commercials were on the other side and are short 77.8% of the OI.  The small spec is a sizeable long, 29.1% of the OI, but was liquidating a small part of his position.
NZD	Contracts:	21,863	11,964	8,717	2,527	1,521	7,237	11,490
	Change:	1,705	-1,751	114	169	-356	3,152	1,812
	% Open Interest:		54.7	39.9	11.6	7.0	33.1	52.6
	Analysis:	There was not a lot of feature in this very small market.  The OI climbed modestly because of commercial activity, primarily on the buy side.  Eleven large specs are long 54.7% of the OI.
AUD	Contracts:	134,834	70,368	8,802	31,160	13,773	30,211	109,164
	Change:	9,886	10,449	-1,490	156	-1,779	1,682	15,555
	% Open Interest:		52.2	6.5	23.1	10.2	22.4	81.0
	Analysis:	There was a revival of big spec demand for the A$ during the period, as they bought over 10,000 contracts, taking their share of the market up to 52.2%.  Te large spec is over an 8 to 1 long while the small spec is about a 2 to 1 long.

*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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