COT Report June 11 2010

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Data and Analysis for Most Recent Release

Legend:	Net Long	Net Short	Position Change

Overview: The week leading up the the June options expiration and the pending June futures expiration should be one where the open interest (OI) goes down.  It was reduced by 21,825 contracts but not as much as one might expect.  The biggest decreases were in the yen and the C$. 

The specs continue to hold positions that put them long the USD and short something else.  The total contracts of long dollars was reduced this past week to 176,703 contracts, down from 181,634 contracts in the previous week.Speculators continue to pitch their longs in the C$, the AU$ and the NZ$.  Small specs flipped their position from long to short in the A$.  The largest speculative short is in the British pound not the euro.  This is true weather you are looking at the total size of the short or the percentage of the market.

Small specs have been reducing their participation in the markets as a percentage of the total.  The biggest long position they hold is in the C$, 30% of the OI while the longs in the SF and the A$ holf 17.4% of the total OI.  On the short side, the biggest short held by the little guy is in the SF at 36.8% followed by the pound at 22.0%.

The largest long position held by the big specs are in our two smallest markets.  They are long 59.3% of the DI, and 48.9% of the NZ$.  The biggest short positions by the large specs, probably hedge funds, are in the pound 46.7% of the total market, and the SF, 46.4% of the OI.  In the futures only format, the biggest percentage of the market held by the large spec is the pound, a massive 55.1% of the total.  Large specs in the futures only format are also short 50.3% of the euro.

			(1) Large Traders		(2) Small Traders		(3) Commercial
		Total OI	Long	Short	Long	Short	Long	Short
USD Index	Contracts:	39,512	23,421	2,981	4,651	1,962	6,132	29,261
	Change:	-1,565	-2,004	92	-829	-226	106	-2,593
	% Open Interest:		59.3	7.5	11.8	5.0	15.5	74.1
	Analysis:	The OI continues to show a gradual reduction as the large trader reduce their long positions.  They do remain, however, almost an 8 to 1 long.  Small specs also reduced positions but remain over a 2 to 1 long in this small market.
EUR	Contracts:	406,070	47,413	127,219	61,875	65,753	200,995	117,311
	Change:	-3,605	-113	-12,389	5,260	-1,963	-11,715	7,784
	% Open Interest:		11.7	31.3	15.2	16.2	49.5	28.9
	Analysis:	With trading coming to an end in the June contracts, it is surprising that there was not a larger reduction in the OI. Down only 3,605 contracts the reduction came from liquidation by the large specs.  Spreading was 23.6% of the total OI, but should go down next week.  This spreading represents options traders who have option strategies that call for both longs and short.  The expiration of June euro options on this past Thursday June 3rd saw the reduction of 236,133 contracts, but 253,520 contracts of the July forward options remain open.  The small spec position in the euro is about even.  Did the OI go up on Friday's sell off?  If so that is generally bearish for the euro.  The futures only report shows the large spec to be short 50.3% of the total OI.
GBP	Contracts:	177,280	12,619	82,874	15,541	38.999	130,336	36,623
	Change:	-5,427	1,584	-1,560	-859	1,265	-2,938	-1,918
	% Open Interest:		7.1	46.7	8.8	22.0	73.5	23.7
	Analysis:	The long form report with options delta adjusted shown here has the large specs remaining short 46.7% of the total market or a 6.5 to 1 ratio.  In the futures only report, the large specs are short an even bigger 55.1% of the market.  The OI showed a modest reduction, but on Thursday 51,239 pound options expired so the OI will go down next week.  Large and small specs remain aggressive short in the pound. Option spreading was 10.6% of the OI.
JPY	Contracts:	153,108	33,851	38,233	22,676	31.104	83,735	70,925
	Change:	-8,782	1,782	-2,216	-109	-3,930	-9,767	-1,948
	% Open Interest:		22.1	25.0	14.8	20.3	54.7	46.3
	Analysis:	The OI declined as both spec groups reduced their short positions.   On Thursday 61,300 options contracts expired which was over half of the OI in yen options.  This market seems evenly balanced with no group showing any big commitment.
CHF	Contracts:	55,600	10,646	25,799	9,672	20,452	30,616	4,682
	Change:	1,865	-479	1,724	-256	1,641	2,176	-1,924
	% Open Interest:		19.1	46.4	17.4	36.8	55.1	8.4
	Analysis:	The OI went up when it should be normally liquidating as the large and small specs continued to sell the SF.  They also reduced longs slightly and are now a 2/2.5 to 1 short.  Little feature during the week.
CAD	Contracts:	138,224	37,631	12,249	41,447	20,398	48,466	94,897
	Change:	-6,458	-3,132	-776	-2,628	1,320	-968	-7,273
	% Open Interest:		27.2	8.9	30.0	14.8	35.1	68.7
	Analysis:	Both the large and small specs reduced some of their long loonie positions during the period, as the OI went down modestly.  The commodity longs have been forced to get out, and despite good fundamental news of Friday, the market acted like there was more taking place then.  Specs were still long but down to modest positions.
NZD	Contracts:	15,586	7,622	5,418	1,522	1,844	6,403	8,285
	Change:	-2,174	-3,720	1,738	449	-147	1,058	-3,804
	% Open Interest:		48.9	34.8	9.8	11.8	41.1	53.2
	Analysis:	Almost 14% of the OI was liquidated this past week as the funds continued to dump their longs.  Another week of continued big spec selling and they will have followed the lead of the small spec, who last period flipped their position.
AUD	Contracts:	125,308	37,402	22,207	21,840	22,781	56,467	70,721
	Change:	4,281	-2,708	2,100	-2,563	3,501	7,871	-3,001
	% Open Interest:		29.8	17.7	17.4	18.2	45.1	56.4
	Analysis:	Aggressive spec selling, and the decreasing of longs by both size specs was the weekly feature here.  The small specs did flip their position to short, following the lead of the small NZ$ specs in the previous week.  Look for further liquidation in the next report, as some of the global commodity bulls have thrown in the towel.

*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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