COT Currency Report Data 03 23 2010

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Data and Analysis for Most Recent Release

Legend:	Net Long	Net Short	Position Change

Overview: Open interest (OI) during the period had healthy growth during the period, lead by the large increase in the euro, 39,899 contracts and the A$ with 16,574.  The total OI increase was 47,793 despite a reduction of 27,462 contracts in the C$, liquidation related to the expiring March contract.  Total spec positions versus the USD are evenly balanced with a net US$ short of 1196 contracts, but specs are heavily long the dollar versus the pound and the euro, long the DI, and short the US$ versus the C$ and the A$. 

The small specs largest long percentage of the total OI is in the SF 38.9%, and the C$ at 30.1%.  Largest small spec short positions are in the SF 28.8%, the Yen 27.9%, and the pound, 22.9%.  The most popular long positions by the large spec is in the NZ$ 77.4%, and the DI 72.7%.  The large specs are also long 57.6% of the A$ and 55.4% of the C$.  Large specs biggest short position is again in the pound 56.2%, followed by euro at 47.7%.  Large and small specs are on different sides of the market in the yen and the SF.

Trends in currencies often last much longer than expected, so a contrarian trader must be patient.  That said, the time will come to buy the pound and sell the C$ or the A$.  The pound has lost almost 2000 pips to the C$ since late January.

			(1) Large Traders		(2) Small Traders		(3) Commercial
		Total OI	Long	Short	Long	Short	Long	Short
USD Index	Contracts:	52,804	38,369	6,100	5,278	2,319	6,321	41,548
	Change:	4,726	3,796	319	699	228	231	4,179
	% Open Interest:		72.7	11.6	10.0	4.4	12.0	78.7
	Analysis:	Large spec traders continue to favor the long side of the DI.  They own over 72% of the long side of this market and are over 6 to 1 long.  Small traders are a 2 to 1 long but are small participants in this market.
EUR	Contracts:	239,208	40,641	114,084	45,671	52,951	119,021	36,298
	Change:	39,899	-2,958	25,768	3,706	5,785	32.388	1,584
	% Open Interest:		17.0	47.7	19.1	22.2	49.8	16.0
	Analysis:	The OI increased sharply, up over 16% during the period.  The last two days of this period were sell off days for the euro.  The feature of this week was large spec selling from the commercial.  There are 68 large specs who are not short 47.7% of this market.  Small specs did add to their positions, but are only modestly short.
GBP	Contracts:	148,185	11,479	83,297	17,046	33,917	108,670	19.981
	Change:	11,972	-864	6,985	-317	-110	10,522	2,556
	% Open Interest:		7.7	56.2	11.5	22.9	73.3	13.5
	Analysis:	The theme remains the same in the pound, the large specs, probably funds, are bearish and short over 56% of the OI.  The 47 large spec shorts added about 7000 contracts and are now a very unbalanced 7.3 to 1 short.  Small specs a 2 to 1 short reduced positions during the period.
JPY	Contracts:	107,260	41,104	29,505	20,022	29,945	38,920	40,596
	Change:	1,066	-214	4,850	-1,204	761	2,278	-4,752
	% Open Interest:		38.3	27.5	18.7	27.9	36.3	37.8
	Analysis:	There was not a lot of movement during the period in the yen.  Large specs remain a modest long and moved the net position closer to even by adding shorts.  Small specs and the commercials flipped to become short the yen.  The small specs increased their net short while the commercial decreased his.  The yen sold off after the cut off date for this report.
CHF	Contracts:	33,245	9,083	10,503	12,935	9,562	9,859	11,812
	Change:	-943	284	-3,896	-127	-1,920	-1,312	4,661
	% Open Interest:		27.3	31.6	38.9	28.8	29.7	35.5
	Analysis:	The big activity for the period was the large spec decreasing their short positions, while the commercial flipped from a long to a short in this market.  Small specs are big players in this market, long almost 39% of the open and short almost 29%.  Large and small specs are on different sides of the market, a little unusual.
CAD	Contracts:	164,275	90,946	16,509	49,498	18,216	17,717	123,437
	Change:	-27,462	8,687	5,193	5,138	-2,133	-36,259	-25,494
	% Open Interest:		55.4	10.0	30.1	11.1	10.8	75.1
	Analysis:	The reduction in the open interest reflects the commercial off setting of open positions at the expiration of the March contract.  The C$ is the most popular long among the currencies.  The large spec is over a 5 to 1 long and the little spec is a 3 to 1 long.  There are 43 large specs long 55.4% of the OI.  Late week market action went against the longs.
NZD	Contracts:	17,599	13,621	8,132	2,684	1,312	1,294	8,155
	Change:	1,961	2,287	-393	207	169	-533	2,185
	% Open Interest:		77.4	46.2	15.3	7.5	7.4	46.3
	Analysis:	There are now 14 large specs who are long 77% of this very small market. The small spec is getting more involved, now a 2 to 1 long.  The increase in the OI was caused by commercial selling and large spec buying.
AUD	Contracts:	147,271	84,812	9,778	33,234	16,643	26,384	118,009
	Change:	16,574	10,484	-569	2,814	5,461	3,012	11,419
	% Open Interest:		57.6	6.6	22.6	11.3	17.9	80.1
	Analysis:	The large specs continue adding to the long side of this market, and are now over a 9 to 1 long.  With interest rate differentials favoring the A$, this may be an explanation for some of the long.  Small specs like wise favor the A$ by a 2 to 1 margin.

*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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