COT Report Data 05 11 2010

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Data and Analysis for Most Recent Release

Legend:	Net Long	Net Short	Position Change

Overview: Despite the fact that the euro and the pound open interest (OI) was up by over 30,000 contracts, the total OI was lower during the period caused in large part by liquidation in the Canadian and Australian dollars.  The total spec positions, long the USD and short something else increased to 160,762 from 155,722.  The biggest position shift was in the Japanese yen where the long dollar short yen position was reduced by over 46,000 contracts.  There were also notable reductions in the long A$ and the C$ while the short euro and pound positions continued to climb.

The small specs had the biggest long positions in the C$ at 30.1% and in the A$ at 21.1%.  The same two currencies were the small specs favorite last week but with larger percentages, which indicates they are liquidating.  The largest short positions by the small specs was in the SF 37.6% and the pound, 23.4%.  Small specs had a big yen short in the previous week but got blown out, no doubt the reason in part for the big yen rally.

The biggest large spec longs remained in the kiwi, 84.4%, the DI 66.5%, and the A$ 46.4%.  The largest short position held by the big specs were in the SF 51.4%, the pound 50.3% and the yen 35.6%.  Friday's action certainly caused more OI shifts which will be cover in the next report.

			(1) Large Traders		(2) Small Traders		(3) Commercial
		Total OI	Long	Short	Long	Short	Long	Short
USD Index	Contracts:	45,241	30,099	3,345	5,790	2,569	6,507	36,483
	Change:	-5,326	-5,379	-2,074	437	172	-407	-3,448
	% Open Interest:		66.5	7.4	12.8	5.7	14.4	80.6
	Analysis:	Large traders were sellers of this market, reducing their long position by over 5000 contracts,  however they remain a 9 to 1 long.  Small traders, not big participants in this market, are a 2 to 1 long.
EUR	Contracts:	380,305	43,769	148,914	56,846	66,850	212,591	97,441
	Change:	20,884	833	13,153	978	2,601	21,359	7,416
	% Open Interest:		11.5	39.2	14.9	17.6	55.9	25.6
	Analysis:	The big OI got even bigger as the specs, primarily the large ones, added to their short positions.  The large specs are a 3.5 to 1 short, but the small specs are not heavily committed to the short side of the euro.  Big numbers are flying around this market about every day.
GBP	Contracts:	161,768	9,360	81,420	19,337	37,923	119,316	28,670
	Change:	9,816	-3,792	2770	-663	1,830	12,635	3,581
	% Open Interest:		5.8	50.3	12.0	23.4	73.8	17.7
	Analysis:	The OI in the pound continues to grow.  The large specs reduced their longs and increased their short and are now short 50.3% of the total market.  Small specs are likewise short but only on a 2 to 1 basis.
JPY	Contracts:	160,775	23,439	57,304	18,431	30,805	109,473	63,235
	Change:	-6,075	8,795	-21,544	1,540	-14,551	-13,258	33,172
	% Open Interest:		14.6	35.6	11.5	19.2	68.1	39.3
	Analysis:	The total OI was down only 6000 contracts but this masked a massive blow out of spec shorts in the yen. The total liquidation of spec short positions during the week was a little over 36,000 contracts.  In addition the specs added yen longs of over 10,000 contracts. In the previous period, specs had been short the yen (by default long the USD) 92,669 contracts.  This was reduced in the period to 46,238 contracts, a massive shift.  Large specs still remain a 2.4 to 1 short the yen.
CHF	Contracts:	53,593	10,038	27,553	10,572	20,136	31,505	4,426
	Change:	-1,111	-2,880	-1,748	-1,537	2,439	3,644	-1,464
	% Open Interest:		18.7	51.4	19.7	37.6	58.8	8.3
	Analysis:	Small specs, big players in the SF, reduced their longs and added to their shorts, while the big specs reduced both longs and shorts.  Specs remain committed to the short side of the SF.
CAD	Contracts:	135,021	58,654	7,190	40,698	19,167	31,038	104,032
	Change:	-18,697	-8,506	-4,674	-9,963	-1,079	516	-12,201
	% Open Interest:		43.4	5.3	30.1	14.2	23.0	77.0
	Analysis:	Spec liquidation was the weekly theme in the loonie, as they reduced their long positions by over 18,000 contracts.  The large spec remained an 8 to 1 long, while the small spec was a modest 2 to 1 long.
NZD	Contracts:	24,215	20,428	3,536	2,885	1,178	902	19,501
	Change:	903	1,467	-449	-578	-314	14	1,666
	% Open Interest:		84.4	14.6	11.9	4.9	3.7	80.5
	Analysis:	Unlike the other 'commodity currencies', there was a modest increase in the OI of the kiwi during the week.  In this tiny market there are 14 large specs who are long 84.4% of the OI.  Small specs liquidated both longs and shorts in the period.
AUD	Contracts:	121,128	56,260	7,141	25,509	17,844	37,171	93,955
	Change:	-21,579	-12,082	-3,954	-8,747	-1,587	-345	-15,634
	% Open Interest:		46.4	5.9	21.1	14.7	30.7	77.6
	Analysis:	Speculators were big sellers during this period, liquidating over 20,000 long contracts.  The large spec remains better than a 7 to 1 long, but the small spec's long has been reduced to a manageable ratio. It is interesting to note that the OI went down in all categories.  Fear of an interruption of the economic recovery, has hit the commodity currencies hard.

*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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