COT Report 04 27 2010

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Data and Analysis for Most Recent Release

Legend:	Net Long	Net Short	Position Change

Overview: The sharp increase in the open interest (OI) of the euro and the SF was important this week.  In both currencies, the large spec was increasing their short positions.  As we mentioned in the past, large specs, when entering positions, generally move the market perhaps, because of their size, or because of better market analysis. 

The total position long the dollar and short something else increased this past week to 86,853 from the previous week's 31,020 contracts.  Most of the increase in the long dollar was caused by increased selling in the euro and the SF, and by reduction in the C$ and A$ longs.

Small specs had the biggest long positions in the SF 33.7% followed by the C$ at 32.4%.  The largest small spec short positions was in the SF 33.0%, the yen 30.9%, followed by the pound at 23.7%.  Largest long positions held by the big specs was in the NZ$ 80.9%, the DI 68.4%, and the A$ 55.0%.  The biggest large spec short position remains in the pound, 47.3%, followed by the yen at 42.9% and the SF 42.6%

			(1) Large Traders		(2) Small Traders		(3) Commercial
		Total OI	Long	Short	Long	Short	Long	Short
USD Index	Contracts:	48,733	33.256	7,321	5,891	2,513	6.852	36,164
	Change:	2,809	1,835	100	714	-191	160	2003
	% Open Interest:		68.2	15.0	12.1	5.2	14.1	74.2
	Analysis:	A small increase in the OI as both large and small specs added to longs.  The large spec is now over a 4 to 1 long, and the small spec is a little better than a 2 to 1 long.
EUR	Contracts:	313,219	37,288	120,783	51,533	59,802	166,357	74,593
	Change:	53,804	2,543	17,720	3,962	7,178	28,476	10,084
	% Open Interest:		11.9	38.6	16.5	19.1	53.1	23.8
	Analysis:	The OI in the euro was already big but increased a further 17.7% in the period.  The big move was by the large spec who was a sizable seller, and is now over a 3 to 1 long.  Small specs are a modest short in this big market.  It looks like the finds have been increasing their short position on weakness.  There are 91 large traders short 38.6% of the total OI, and 53 large traders hold 11.9% of the OI.
GBP	Contracts:	137,283	13,207	68,053	20,362	32,536	93.992	26,972
	Change:	2,014	-2,023	4,103	631	467	1,723	-4,240
	% Open Interest:		9.6	49.6	14.8	23.7	68.5	19.6
	Analysis:	While there was little change in the total OI, the large spec was busy decreasing his long and increasing his short.   The large spec is an entrenched short on a better than 5 to 1 ratio and short almost 50% of the total OI.  Small specs are likewise short the pound but far less aggressive than the large specs.
JPY	Contracts:	153,773	16,058	63,904	17,360	43,395	109.662	35,781
	Change:	5,234	650	194	703	-2,503	2,396	6,059
	% Open Interest:		10.4	41.6	11.3	28.2	71.3	23.3
	Analysis:	There was not a lot of movement of yen positions during the period.  There are 52 large specs short on a 4 to 1 basis over 41% of the total OI.  Small specs are a 2.5 to one short but took in some shorts.There was over a 30% increase in the OI
CHF	Contracts:	51,988	13,138	26,604	12,225	16,043	25,094	7,810
	Change:	16,102	3,286	11,302	135	4,206	12,534	446
	% Open Interest:		25.3	51.2	23.5	30.9	48.3	15.0
	Analysis:	There was over a 30% increase of the OI in the period.  The large spec aggressively sold the SF, and they were joined by the small specs who decisively flipped their position to the short side.  We wonder if the specs are selling the SF because of the proximity to the euro community or are some Swiss banking problems about to surface?
CAD	Contracts:	157,182	73,093	12,106	51,118	19,292	28,279	121,093
	Change:	-3,408	-9,897	-536	-748	-1.012	6,767	-2,330
	% Open Interest:		46.5	7.7	32.5	12.3	18.0	77.0
	Analysis:	The speculators remain committed to the long side of the C$, though they did peel out of some of their longs.  Large specs do remain better than a 6 to 1 long while the little guy is a modest 2.5 to 1 long.
NZD	Contracts:	21,797	17,554	4,645	3,125	1,333	1,118	15,819
	Change:	3,886	3,057	-1,100	219	-62	610	5,048
	% Open Interest:		80.5	21.3	14.3	6.1	5.1	72.6
	Analysis:	This very small market did have a 17% increase in the OI during the period.  Nineteen large specs are now long 80.5% of the OI.  They also reduced their short position by 1100 contracts.
AUD	Contracts:	145,156	75,754	9.071	36,339	19,131	30,988	114,879
	Change:	-13,683	-11,577	1,283	-3,601	887	1,697	-15,651
	% Open Interest:		52.2	6.2	25.0	13.2	21.3	79.1
	Analysis:	Both large and small specs decided it was time to reduce longs during the period, though both groups have a lot more to sell prior to flipping a position.  The large specs, probably funds, still hold a hefty 52.2% of the OI, and are better than an 8 to 1 long, while the small specs are a modest 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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