COT Report 05 18 2010

To Subscribe to alerts when a new COT report is published (weekly) click here and choose "subscribe" on the weekly COT alerts field, and click to update your existing account or register a new one.

Data and Analysis for Most Recent Release

Legend:	Net Long	Net Short	Position Change

Overview: Analysis Data through 05 18 2010  There was a 50,556 increase in the euro open interest (OI) as traders debated the future of the euro. The OI in the pound also surged by over 20,000 contracts.  The total OI of the currencies we follow were up 69,237.  Despite the increase in the OI, speculators net short positions in the euro went down from 115,150 to 90,921 contracts.

In the analysis below  we note that spreading is 21.3% of the total OI in the euro when we use the long form.  This form incorporates the delta adjusted option positions.  When we examine the short form futures only data, spreading represents only 0.9% of the total.  Since the total OI in euro options exceed 433,000 contracts, this explains the spreading activity.  This means there are some real big trades on both sides of the euro with straddles, strangles and perhaps vertical call and calendar spreads.

The total speculator positions long the USD and short something else changed very little during the period at 161,400 contracts up from 160,712 in the previous period.  Short positions went  down in the DI, euro, pound and franc and up in the yen.  All of the 'commodity currencies' lost longs in the period.

The biggest small spec long positions were in the C$ 30.0% and the SF 28.6%, while the biggest short positions were in the SF 35.9%, the A$ 24.6% and the yen at 24.5%.  Large specs have the biggest long positions in the NZ% 78.4% and the DI 65.3%.  Biggest short positions for the large specs are in the SF 47.6%, the pound 47.4%, and the euro at 35.3%.  If the options are removed from the euro, the large specs would be short 53.8% of the total futures market.

			(1) Large Traders		(2) Small Traders		(3) Commercial
		Total OI	Long	Short	Long	Short	Long	Short
USD Index	Contracts:	42,693	27,866	2,776	5,305	2,408	6,509	34,496
	Change:	-2,548	-2,233	-569	-486	-161	2	-1,986
	% Open Interest:		65.3	6.5	12.4	5.6	15.2	80.8
	Analysis:	The OI contracted modestly during the period.  Both large and small spec liquidated small portions of their long and short positions.  The large spec remains a 10 to 1 long, while the small spec is only a 2 to 1 ling,
EUR	Contracts:	431,261	61,595	152.277	72,218	72,457	205,518	114,597
	Change:	50,956	17,826	3,363	15,373	5,606	-7,074	17,156
	% Open Interest:		14.3	35.3	16.7	16.8	47.7	26.6
	Analysis:	The OI continues to go higher, this week, up by  over 11%.  Both spec groups have been short the euro but in this period they were net buyers of 14,463 by the large specs and 9767 by the small specs.  While the large spec remains a 2.5 to 1 long, the small spec is even, very close to flipping his position.   For some reason, spreading which is classified as a non-commercial activity, accounted for 21.3% of the OI and an increase of 24,831 during the period. Why these accounts are both long and short (spreading) is unknown.
GBP	Contracts:	181,833	10,798	56,217	34,215	37,231	116,606	38,081
	Change:	20,065	1,347	4,797	14,878	-693	-2,710	9,411
	% Open Interest:		5.9	47.4	18.8	20.5	64.1	20.9
	Analysis:	The Oi did go up during the period with the big position change, caused the small spec, who was a buyer of almost 15,000 contracts.  Big specs, probably the funds remain short on a 5 to 1 ratio, 47.4% of the total OI.  The small spec is now close to even in this pound.
JPY	Contracts:	157,949	21,498	55,045	17,208	38,681	109,367	54,348
	Change:	-2,826	-1,941	-2,259	-1,223	7,876	-106	-8,887
	% Open Interest:		13.6	34.8	10.9	24.5	69.2	34.2
	Analysis:	There was not a lot of movement of position.  Both spec groups have been short the yen though the small spec covered some of his short.  Remember the yen was firm during most of the period, so it is surprising more of the yen short was not covered.. Both groups remain about a 2.5 to 1 short.
CHF	Contracts:	52,838	10,465	25,149	15,138	18,960	23,970	5,464
	Change:	-755	427	-2.404	4,566	-1,176	-7,535	1,038
	% Open Interest:		19.8	47.6	28.6	35.9	45.4	10.3
	Analysis:	The large spec is a 2.4 to one short the SF and did cover a small portion during the period.  Small specs are very modest shorts in the SF having reduced their net short by about 5,700 contracts.
CAD	Contracts:	140,961	54,238	7,153	42,299	30,527	38,774	97,632
	Change:	5,940	-4,416	-37	1,601	11,359	7,736	-6,401
	% Open Interest:		38.5	5.1	30.0	21.7	27.5	69.3
	Analysis:	The small spec who has been a big long in this market moved closer to a net even position by shorting over 11,000 contracts.  Large specs, thirty is total, reduced their long by over 4,400 contracts but remain long 38.5% of the total OI, and a 7.5 to 1 long.  Considering the week loonie, we would have expected to see more liquidation.
NZD	Contracts:	21,357	16,740	4,187	3,845	1,889	772	15,281
	Change:	-2,858	-3,688	651	960	711	-130	-4,220
	% Open Interest:		78.4	19.6	18.0	8.8	3.6	71.6
	Analysis:	The OI was down over 10% in this very small market, mostly caused by selling of almost 3,700 contracts by the large specs.  They remain a 4 to 1 long and are carrying ownership of 78% of the total market.  Small specs picked up their interest in the kiwi, adding to longs and shorts.
AUD	Contracts:	122,391	50,621	12,911	28,561	30,081	39,034	75,225
	Change:	1,263	-5,638	5,770	3,052	12,237	1,862	-18,730
	% Open Interest:		41.4	10.5	23.3	24.6	31.8	61.5
	Analysis:	Although the OI changed very little, hidden from the first glance is a shift by speculators to the short side of the A$.  Most aggressive was the small spec who flipped to the short side of the A$. The large spec remains long, a 4 to 1 though he did reduce his net long by over 11,000 contracts.  It is peculiar seeing the small spec, the first to flip positions, and it will be interesting to see if the large spec follows.

*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.

Click here for previous COT Analysis Postings  |  Click here for CFTC page about the COT Report