COT Report 05 04 2010

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Data and Analysis for Most Recent Release 05 04 2010

Legend:	Net Long	Net Short	Position Change

Overview: The total open interest increased by over 74,000 during the period with the euro accounting for the biggest share of the increase.  There was some minor liquidation in the A$ and the C$, but every other currency went up.  Total speculator positions long the USD and short something else soared during the period.  In the previous period the long USD position was 86,853 contracts, but this increased to 155,722 in the reporting period.  The biggest increase was in the yen, up 18,788 contracts and the pound, up 14,572 contracts.

As the OI increases the small specs seem to have a smaller share of these market.  The biggest small spec long positions remain inthe C$, 33.0% and in the A$, 24.0%.  The largest small spec short positions is in the SF, 32.3%, the yen 27.2% and in the pound, 23.8%.

Large spec, likely funds, have the biggest long positions in the NZ$, 81.3% and in the DI, 70.2%.  They also have healthy positions in the commodity currencies, the A$ 47.9% and the C$ with 43.7%.  The biggest large spec short positions are in the SF, 53.6% and the pound, 51.8%.  Overall the biggest currency contracts remains the euro but the players are about evenly balanced in that contract.

The market purge that started on Tuesday and continued through the balance of the week will be reflected in the new COT report for data through 05 11, 2010.

			(1) Large Traders		(2) Small Traders		(3) Commercial
		Total OI	Long	Short	Long	Short	Long	Short
USD Index	Contracts:	50,568	35,478	5,419	5,354	2,396	6,915	39,931
	Change:	1,835	2,221	-1,902	-537	-117	63	3,766
	% Open Interest:		70.2	10.7	10.6	4.7	13.7	79.0
	Analysis:	This market continues to be dominated by the very large specs that are long the DI and the commercials who are short.  There are 48 large traders who are long 70.2% of the OI.  For all the speculative interest in the dollar it is surprising the open interest is not larger.  Big specs are almost a 7 to 1 long.
EUR	Contracts:	359,421	42,936	135,761	55,867	64,249	191,232	90,025
	Change:	46,201	5,648	14,978	4,334	4,447	24,875	15,432
	% Open Interest:		11.9	37.8	15.5	17.9	53.2	25.0
	Analysis:	The OI continues to soar in the euro with all groups increasing their participation.  The large specs are about a 3 to 1 short in the euro, but the small specs are only modestly short.  The OI was up almost 13% during the period.  The OI has  been building as this market has been selling off.
GBP	Contracts:	151,952	13,152	78,650	19,999	36,093	106,681	25,089
	Change:	14,669	-55	10,997	-363	3,557	12,689	-1,884
	% Open Interest:		8.7	51.8	13.2	23.8	70.2	16.5
	Analysis:	The large spec continued to build his short position to over a 6 to 1 ratio short.  The hung parliament resulting from the election proved they were right.  It will be interesting to see what happened in the late week volatility after the end of this report.  There are now 46 big spec shorts in this market.
JPY	Contracts:	166,851	14,644	78,848	16,891	45,356	122,731	30,062
	Change:	13,077	-1,413	14,945	-469	1,961	13,069	-5,719
	% Open Interest:		8.8	47.3	10.1	27.2	73.6	16.0
	Analysis:	The late week volatility in the yen had some exaggerated moves similar to some of the unexplained move in certain stocks.  Both the large specs, a 5 to 1 short and small specs, a 2.5 to 1 long suffered as the yen put in a very strong rally while the equities were crashing.  The yen has been a popular short for the carry trade, and it looks like some of that money was taken off the table late last week.  Only prediction for next week is that the trade should be interesting.
CHF	Contracts:	54,704	12,918	29,300	12,108	17,697	27,861	5,891
	Change:	2,716	-220	2,696	-117	1,653	2,767	-1,920
	% Open Interest:		23.6	53.6	22.1	32.3	50.9	10.8
	Analysis:	Speculators had flocked to the short side of the SF as they hoped the weak euro and the SNB would help weaken the franc.  Versus the USD this did succeed and the SF weakened to our target of 110/112.
CAD	Contracts:	153,718	67,161	11,863	50,661	20,246	30,522	116,234
	Change:	-3,463	-5,932	-242	-458	954	2,243	-4,859
	% Open Interest:		43.7	7.7	33.0	13.2	19.9	75.6
	Analysis:	There was some minor liquidation in the C$ during this period but it appeared there was more after the end of the period when there was some margin issues.  The big specs remained over a 5 to 1 long but their portfolio took a hit late week.  Small specs likewise were big players on the long side of the C$
NZD	Contracts:	23,312	18,961	3,985	3,463	1,492	888	17,835
	Change:	1,515	1,407	-660	338	159	-230	2,016
	% Open Interest:		81.3	17.1	14.9	6.4	3.8	76.5
	Analysis:	There was a small build in the OI of this very small market, as the large specs added to longs and reduced shorts.  The kiwi has broad based speculator support, while commercials are long only 3.8% of the total OI.
AUD	Contracts:	142,707	68,342	11,095	34,256	19,430	37,516	109,589
	Change:	-2,449	-7,412	2,025	-2,083	299	6,528	-5,290
	% Open Interest:		47.9	7.8	24.0	13.6	26.3	76.8
	Analysis:	Like the C$ there was some minor spec liquidation in the A$ as the large specs came out of 7412 contracts of longs and added 2025 shorts.  The late week carnage in the currencies probably took a toll on the longs, as it looked like the yen carry traders surrendered.  Next week should prove interesting but we have no idea how the news is going to break.

*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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