COT Report 03 16 2010

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Data and Analysis for Most Recent Release

Legend:	Net Long	Net Short	Position Change

Overview: This was a week for liquidation as the March futures contracts became history.  All contracts except the C$ went down with the total reductions amounting to 185,329 contracts.  The C$ went up 43,256 contracts but after the report was closed the C$ went down 38,842 contracts the next day.  Most of the reduction in the OI was done by the commercials, probably an indication they were hedging or using the futures to price contracts.  Long USD spec positions were reduced in the DI, the euro and the SF but increased marginally in the pound.  Long other currency positions leaving them short the dollar  increased, but by only 3/4000 contracts.  Net positions have the specs now short 12,731 contracts of the dollar.  The small specs largest long position is in the SF 38.2%, followed by both the A$ and the C$ at a little over 23%.  Biggest small spec short positions are in the SF, the yen and the pound by 33.6, 27.5 and 25%.  Large specs continue to have the biggest longs in the NZ$ 72.5% and the DI, 71.9%  The biggest large spec short positions are in the pound 56.1% and the NZ$ at 54.5%.  It interesting to note that the OI in the euro was, after the close of this report, up 14,770 contracts on a down day Thursday

			(1) Large Traders		(2) Small Traders		(3) Commercial
		Total OI	Long	Short	Long	Short	Long	Short
USD Index	Contracts:	48,078	34,574	5,781	4,579	2,091	6,090	37,370
	Change:	-11,410	-5,950	1,287	-1,096	-352	-2,552	-10,534
	% Open Interest:		71.9	12.0	9.5	4.3	12.7	77.7
	Analysis:	The open interest (OI) was down with the expiration of the March contract.  The large spec increased his ownership of the long side up to 71.9% of the total market, and a 6 to 1 long.  Small specs are a 2 to 1 long, but they remain uninvolved in this market.
EUR	Contracts:	199,309	43,599	88,316	41,965	47,166	86,633	36,714
	Change:	-80,782	10,364	-18,132	-903	-2,772	-87,276	-56,911
	% Open Interest:		21.9	44.3	21.1	23.7	43.5	18.4
	Analysis:	The very large liquidation was mostly the big commercials, and it would seem that such large changes probably reflects hedging offsets. Large spec increased their longs and decreased substantially their shorts.  They are now a 2 to 1 short in the euro.  Small traders are big players in this market but are only a modest short.
GBP	Contracts:	136,213	12,344	76,402	17,363	34,028	98,149	17,425
	Change:	-26,466	1,420	2,354	-2,602	-2,801	-23,787	-24,522
	% Open Interest:		9.1	56.1	12.7	25.0	72.1	12.8
	Analysis:	Open interest remains large even after the March expiration.  Market action after the cut off for this report was probably some shorts bailing out.  The large specs were a 6 to 1 short, and short 56.1% of the OI.  Little specs are a 2 to 1 short.
JPY	Contracts:	106,194	41,318	24,655	21,226	29,184	36,642	45,347
	Change:	-40,897	-10,632	280	-3,374	724	-26,749	-41,759
	% Open Interest:		38.9	23.2	20.0	27.5	34.5	42.7
	Analysis:	Big commercial liquidation no doubt reflecting export pricing activity.  The large spec and the small spec are going different ways, with one long and the other short.
CHF	Contracts:	34,188	8,799	14,399	13,062	11,482	11,171	7,151
	Change:	-15,412	-1,646	-1,473	2,694	-969	-16,535	-13,045
	% Open Interest:		25.7	42.1	38.2	33.6	32.7	20.9
	Analysis:	Commercials were large liquidators during the week.  Large specs are now short the SF and the small specs are long. with the small specs big players in this market.  Recent strength in the Swissy has favored the little guy who flipped to a long position during the period.
CAD	Contracts:	191,737	82,259	11,316	44,360	20,349	53,976	148,931
	Change:	43,256	10,102	1,282	1,079	2,673	26,255	33,481
	% Open Interest:		42.9	5.9	23.1	10.6	28.2	77.7
	Analysis:	Commercial liquidation takes place a day later on the C$ probably because the futures closes before the cash market does. There are 37 large specs long 7 to 1 in this market.  Small specs are also an aggressive long in this market.
NZD	Contracts:	15,638	11,334	8,525	2,477	1,143	1,827	5,970
	Change:	-6,225	-630	-192	-50	-378	-5,410	-5,520
	% Open Interest:		72.5	54.5	15.8	7.3	11.7	38.2
	Analysis:	After the commercial liquidation in the March futures, this is now really a small market.  Eleven large spec hold 72.5% of the market.  Small spec are gradually moving in on the long side.
AUD	Contracts:	130,697	74,328	10,347	30,419	11,182	23,371	106,590
	Change:	-4,137	3,960	1,545	-740	-2,591	-6,840	-2,573
	% Open Interest:		56.9	7.9	23.3	8.6	17.9	81.6
	Analysis:	Very little liquidation in this market as the Mch contracts expired.  Large specs have returned to this currency and are now a 7 to 1 long, holding almost 57% of the total market.  Like the big guy the small spec has become fond of the market and is now almost a 3 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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