COT Report Data Ending 06 08 2010

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Data and Analysis for Most Recent Release

Legend:	Net Long	Net Short	Position Change

Overview: This period was a week of moderate liquidation, the biggest change in the euro, down 21,648 contracts.  Total liquidation was 27,958 not a large amount considering the June contract is expiring. 

The long dollar position in the futures continues to grow, to a total of 208,839 contracts.  The large specs are long the DI but that is a very small market.  Specs are now short the euro, pound, yen, SF, and even the NZ$, meaning by default they are long the dollar.  The spec longs in the commodity currencies have, in large part, gotten out of this trade, which leaves the composite total longer in the USD.

The small specs are no longer very big players on the long side of the markets.  Their biggest percentage long is the A$ 20.3% and the C$ 18.1%.  On the short side the little spec is short 29.6% of the SF, 21.9% of the yen and 21.6% of the pound.

The largest spec long is in the DI with 66.2% of the market.  Large specs second largest long is in the NZ$ with 34.7% of the OI, down from 63.9% two weeks ago.  The large specs are also short 39.5% of the kiwi market.  The biggest large spec short position is in the pound 49.2% of the OI, followed by the SF with 40.8% of the market, and the euro with 38.8% of the very large total OI.  In the futures only COT report, the large spec is short 53.2% of the pound market and 51.8%.

Trade in the euro is large and meaningful so we have duplicated our analysis in this section. There were some interesting changes in the euro during this period.  The small spec, who had been short the euro for many months switched to the long side.  They accomplished this by liquidating more of their shorts than their longs.  The large spec aggressively shorted the euro increasing his bearish bet by 21,964 contracts.  Total spreading remains big, 68,328 contracts of 17.8% of the OI.  Total option OI on Thursday June 10th was 277,268 contracts. If the futures only report, the large spec is long 15.1% of the OI and short 51.8.  This probably suggest some of the big short here is reduced with options.  This could be accomplished by buying calls or selling puts.  OI has continued to build after the end of this reporting period.

			(1) Large Traders		(2) Small Traders		(3) Commercial
		Total OI	Long	Short	Long	Short	Long	Short
USD Index	Contracts:	38,632	25,593	4,839	5,567	2,757	4,192	27,756
	Change:	-880	2,172	1,859	916	794	-1,940	-1,505
	% Open Interest:		66.2	12.5	14.4	7.1	10.9	71.8
	Analysis:	There was a minor reduction in the OI during the period. This market, not a very big one, is dominated by the large spec's very large position on the long side of the market, over a 5 to 1 long.  Small specs, a 2 to 1 long, added to both longs and shorts during the period.
EUR	Contracts:	384,422	48,625	149,183	57,553	57,461	209,917	109,451
	Change:	-21,648	1,213	21,964	-4,323	-8,292	8,922	-7,861
	% Open Interest:		12.6	38.8	15.0	14.9	54.6	28.5
	Analysis:	There were some interesting changes in the euro during this period.  The small spec, who had been short the euro for many months switched to the long side.  They accomplished this by liquidating more of their shorts than their longs.  The large spec aggressively shorted the euro increasing his bearish bet by 21,964 contracts.  Total spreading remains big, 68,328 contracts of 17.8% of the OI.  Total option OI on Thursday June 10th was 277,268 contracts. If the futures only report, the large spec is long 15.1% of the OI and short 51.8.  This probably suggest some of the big short here is reduced with options.  This could be accomplished by buying calls or selling puts.  OI has continued to build after the end of this reporting period.
GBP	Contracts:	183,147	15,818	90,179	17,137	39,563	137,497	40,710
	Change:	5,867	3,200	7,306	1,596	563	7,161	4,087
	% Open Interest:		8.6	49.2	9.4	21.6	75.1	22.2
	Analysis:	The OI increased modestly during the period.  All groups continued holding on  and adding to existing positions.  Speculators continue to be aggressively bearish on the pound.  While the small spec has flipped to long in the euro, the little spec is a 2.3 to one short in the pound.  In futures only, the large spec is short 53.2% of the total OI.  With all the concern about the myriad of difficulties in euroland, what makes the specs so bearish on the pound?
JPY	Contracts:	146,045	29,098	40,434	20,702	30,597	87,026	65,794
	Change:	-7,063	-4,753	2,202	-1,973	-506	3,291	-5,130
	% Open Interest:		19.9	27.7	14.2	21.9	59.6	45.1
	Analysis:	The pundits tell us that the spec flocks to the long side of the yen during turbulent equity markets, but this is not confirmed in the futures positions.  The OI was down slightly as the specs reduced their long contracts.  In doing so the specs increased their short yen position to over 21,000.  Market is fairly evenly balanced.
CHF	Contracts:	62,252	14,028	25,386	9,836	18,461	36,569	16,631
	Change:	6,652	3,382	-413	165	-2,036	5,953	11,949
	% Open Interest:		22.5	40.8	15.8	29.6	68.7	26.7
	Analysis:	The OI was up a little over 10% as the large specs and the commercials bought the market.  Commercials were also big on the sell side.  Both size specs are a little under a 2 to 1 short and carry a large percentage share of the market
CAD	Contracts:	134,854	36,984	12,435	37,876	16,354	49,346	95,416
	Change:	-3,370	-647	186	-3,571	-4,044	880	519
	% Open Interest:		27.4	9.2	18.1	12.1	36.6	70.8
	Analysis:	Small specs liquidated both their longs and their short.  The total OI was down a modest amount.  The large specs remain a 3 to 1 long in the C$ but the little specs have liquidated most of their longs.
NZD	Contracts:	17,962	6,230	7,099	1,392	1,922	10,301	8,902
	Change:	2,376	-1,392	1,681	-130	78	3,893	617
	% Open Interest:		34.7	39.5	7.7	10.7	57.2	49.6
	Analysis:	During the past two weeks, the specs and the commercials have changed places with the specs going from the long to the short side of the kiwi.  All participants are evenly balanced and could easily again reverse positions.
AUD	Contracts:	115,416	30,254	21,498	23,373	18,975	58,788	71,948
	Change:	-9,892	-7,147	-714	1.534	-3,806	2,321	1,227
	% Open Interest:		26.2	18.6	20.3	16.4	50.9	62.3
	Analysis:	Small specs were fickle with their short position and flipped back to the long side, which appears to have been a good trade.  Both spec groups are long but with small positions.  The OI in this market is way down as the commodity currency bulls have capitulated.

*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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