COT Report 04 13 2010

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Data and Analysis for Most Recent Release

Legend:	Net Long	Net Short	Position Change

Overview: COT Report through 04 13,2010 Total open interest (OI) esd doen by 38,304 contracts during the period.  The biggest drop was in the euro, 22,901 contracts, and the pound, 10,643.  Both of these futures markets had a big spec short interest.  There was also a 6200 contrast in the C$.  The total long dollar position decreased during the period, and is down to only 34,609 contracts down from last week's 46,935 contracts.  The aggregate number hid the big spec longs in the Aussie, and the C$, both of which are over 100,000, by default, short the USD.  The late week market action favored the USD.  The largest spec short is now in the yen.

The largest big spec positions did not change much.  They are long 78.5% of the NZ$,69% of the DI, 56.2% of the A$ and 54.6% of the C$.  The biggest short by the big spec remains in the pound 52.7%, followed by a 47.3% position short the yen.  The small specs have their biggest long positions in the SF 34.4%, followed by a 29.9% in the C$ and a 25.4% in the A$.  Specs have their biggest short positions in the SF 34.3% followed by a 29.4% short in the yen.  The spec selling in the yen is fairly recent, and the late week strength in the yen may have thinned their ranks.

			(1) Large Traders		(2) Small Traders		(3) Commercial
		Total OI	Long	Short	Long	Short	Long	Short
USD Index	Contracts:	48,001	33,126	5,479	5,519	2,768	6,767	37,165
	Change:	-3,623	-2,138	463	-432	-125	-885	-3,793
	% Open Interest:		69.0	11.4	11.5	5.8	14.1	77.4
	Analysis:	The OI was reduced as both large and small specs reduced long positions.  The large spec remains a 6 to 1 long owning 69% of the market.  Small specs are a 2 to 1 long but are not big participants in this small market.
EUR	Contracts:	248,451	34,472	85,864	44,578	57,447	131,365	67,104
	Change:	-22,901	-4,947	-17,573	-1,035	2,038	-5,784	3,768
	% Open Interest:		13.9	34.6	17.9	23.1	52.9	27.0
	Analysis:	The OI was down about 9% during the period primarily because the large spec was reducing his short position.  He also sold out some of his longs but remains a 2.5 to 1 short in the euro.  Small specs were going the other way, reducing longs and increasing short bets in the euro.
GBP	Contracts:	135,262	14,540	71,269	17,787	29,547	95,617	27,128
	Change:	-10,632	-199	-1,818	987	-5,921	-8,212	315
	% Open Interest:		10.7	52.7	13.2	21.8	70.7	20.1
	Analysis:	A modest reduction in the OI was mostly caused by the small spec taking off 5,921 contracts of his shorts, while commercial reduced his long.  This action may have given us a modest short covering rally in the period.  The large spec is firmly short, more than 52% of the OI. Big specs continue to favor being the short pound positions more than the euro.
JPY	Contracts:	144,826	14,458	68,468	17,082	42,571	105,712	26,213
	Change:	1,987	-5,086	7,808	-2,583	-755	14,839	117
	% Open Interest:		10.0	47.3	11.8	29.4	73.0	18.1
	Analysis:	There was little change in the OI but the large specs continued to build their short yen positions.  They are now a 4.7 to one short.  Small specs like wise are short the yen but did not add during the period.  On Friday, after the end of the reporting period, the yen was very strong, especially in some of the crosses, so it will be interesting to observe the change in the OI which comes out Monday.  Cause of the weakness was the Goldman indictment and the weak financials.
CHF	Contracts:	36,282	10,297	15,543	12,476	12,448	12,226	7,008
	Change:	935	652	1,698	-392	653	1,309	-782
	% Open Interest:		28.4	42.8	34.4	34.3	33.7	19.3
	Analysis:	The unusual thing about this market is the large and evenly balanced small spec positions.  While the large spec is short the SF, the little guy is just a touch long.  The large spec is short the franc and the commercial is long.
CAD	Contracts:	161,766	88,314	17,202	48,408	18,396	22,006	123,130
	Change:	-6,200	-2,162	-2,071	983	-1,314	-252	1,954
	% Open Interest:		54.6	10.6	29.9	11.4	13.6	76.1
	Analysis:	The large spec, primarily funds, remain a 5.1 to 1 long in the C$, but did not add to positions.  Small specs  did increase their long bet and are now long 29.9% of the OI.  This market has been a very unbalanced long so the sell off in the C$ Friday should not have been a surprise.  The change in futures open positions on Monday will reveal the extent of the liquidation.
NZD	Contracts:	17,540	13,771	6,620	3,112	1,161	657	9,759
	Change:	1,319	935	-713	333	-163	51	2,195
	% Open Interest:		78.5	37.7	17.7	6.6	3.7	55.6
	Analysis:	The feature in this small market was increasing the net long by speculators.  They added to their longs and reduced their shorts.  The large spec is now long 78.5% of OI.  Small spec activity in this market has grown and they are now a 2.7 to one long.  Commercials are long only 3.7% of the kiwi, a very small position.
AUD	Contracts:	157,736	88,632	7,666	40,065	18,033	26,993	129,991
	Change:	830	4,341	-2,513	-328	756	-2,266	3,504
	% Open Interest:		56.2	4.9	25.4	11.4	17.1	82.4
	Analysis:	Little total change in the OI but the big spec did increase his long bet and is now a 11.4 to one ratio long in the A$.  The little specs reduced their net long by a minor amount but remains over a 2 to 1 long.  The total spec long is over 80% of the contract.

*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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