COT Report Data 06 15 2010

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Data and Analysis for Most Recent Release

Legend:	Net Long	Net Short	Position Change

Overview: The big drop in the OI reflected in large part the expiration of of the June futures and options.  The total open interest contraction was 256,367 contracts, and that is without the expiration of the C$ contracts which will not show up until next week.

In addition to the June contract liquidation we also saw a reduction in the long USD positions.  In the previous week specs were either long the DI, or short another currency which by default left them long the USD by 208,239 contracts.  This position was reduced to 141,002 contracts.  The biggest short covering was in the euro and the pound.  Small specs flipped their position in the euro, where they went back to the short side, and in the tiny Kiwi market where they went long.

This week the biggest small spec long positions are in the A$, 31.1% and the C$ with 26.7%.  The biggest small spec short positions are in the yen, 32%, and in the SF, 31.6%.  Large specs have their biggest percentage long in the DI, 76.2% and the NZ$ at 47.6%.  The NZ$ also has the biggest short at 71.1% of the OI.  The second biggest large spec short position is in the SF, 53.7%.

The euro analysis is interesting so we will repeat it here.....Liquidation of the June contract in the euro brought a 28% reduction in the OI.  Spreading remains very large, 18.9% of the open interest when futures and options are combined, however only 0.8% of the futures only report.  This suggests that the large players, investment banks and hedge funds are involved writing covered options and spreading.  In the futures only report the large specs are long 21.8 and short 49.2% of the OI compared in the combined futures and options report of 16.1 and 34.4%.  Small specs flipped again from being very small longs back to the short side of the euro.  Short covering was part of last week's rally.

			(1) Large Traders		(2) Small Traders		(3) Commercial
		Total OI	Long	Short	Long	Short	Long	Short
USD Index	Contracts:	32,662	24,892	2,895	4,550	1,867	2,611	27,291
	Change:	-5,970	-701	-1,945	-1,018	-890	-1,581	-465
	% Open Interest:		76.2	8.9	13.9	5.7	8.0	83.6
	Analysis:	The expiration of the June contract in part caused the OI to decrease 18%.  Large traders are now long 76.2%, over an 8 to 1 ratio long in this small market.  Small specs are also favoring the long side in this market.
EUR	Contracts:	299,997	48,240	103,339	48,964	63,838	146,232	76,259
	Change:	-84,425	-385	-45,884	-8,589	6,378	-63,684	-33,191
	% Open Interest:		16.1	34.4	16.3	21.3	48.7	25.4
	Analysis:	Liquidation of the June contract in the euro brought a 28% reduction in the OI.  Spreading remains very large, 18.9% of the open interest when futures and options are combined, however only 0.8% of the futures only report.  This suggests that the large players, investment banks and hedge funds are involved writing covered options and spreading.  In the futures only report the large specs are long 21.8 and short 49.2% of the OI compared in the combined futures and options report of 16.1 and 34.4%.  Small specs flipped again from being very small longs back to the short side of the euro.  Short covering was part of last week's rally.
GBP	Contracts:	135,229	14,529	62,966	15,418	34,256	95,611	28,336
	Change:	-47,917	-1,289	-27,213	1,718	-5,307	-41,886	-12,374
	% Open Interest:		10.7	46.6	11.4	25.3	70.7	21.0
	Analysis:	There was a 35% reduction in the total OI with the expiration of the June contracts.  Specs remain committed to the short side by a 4.3 to 1 big spec and a 2.2 to 1 small spec ratio.  In this report the large specs are short 46.6% of the OI, but in futures only, they are short 51.3% of the total market.  With spreading 7.2% of the total the big futures/ options players are busy in this market.
JPY	Contracts:	94,986	25,040	27,703	16,663	30,393	45,500	29,106
	Change:	-51,058	-4,058	-12,731	-4,040	-204	-41,526	-36,688
	% Open Interest:		26.4	29.2	17.5	32.0	47.9	30.6
	Analysis:	The very large OI decline with June expiration was mainly caused by the commercial liquidating both their longs and their shorts.  This suggests the futures were used by commercial traders to price commercial currency activity.  Large specs are very small shorts in the yen but the small specs, by selling longs are now approaching a 2 to 1 short.  The late week market action favored the long.
CHF	Contracts:	46,921	8,746	25,208	7,896	14,810	28,461	5,084
	Change:	-15,331	-5,282	-178	-1,940	-3,606	-8,108	-11,547
	% Open Interest:		18.6	53.7	16.8	31.6	60.7	10.8
	Analysis:	There was good size liquidation in the SF during the period.  All groups were reducing positions but the biggest change was the commercial who reduced both his long and his short.  Large specs also got out of over 5000 contracts of longs.  Large specs are now about a 3 to 1 short in this market, and 53.7% of the total.
CAD	Contracts:	142,142	37,675	8,999	38,022	18,012	52,697	101,383
	Change:	7,288	692	-3,436	146	1,658	3,351	5,967
	% Open Interest:		26.5	6.3	26.7	12.7	37.1	71.3
	Analysis:	The cut off time for this report was prior to the closing of the June contract, so the June expiration will not show up until nest week.  There was very little shifting of positions during the week.  Both size specs remain long this market.
NZD	Contracts:	9,089	4,329	6,458	1,905	1,370	2,855	1,261
	Change:	-8,873	-1,901	-641	513	-552	-7,446	-7,641
	% Open Interest:		47.6	71.1	21.0	15.1	31.4	13.9
	Analysis:	The big spec commodity currency longs are are essentially gone and so is the OI.  This group was long 80% of the OI at one time is now short  71% of the total in this very small market.  Small specs flipped their position to the long side.
AUD	Contracts:	65,285	27,727	15,087	20,286	19,323	12,565	26,169
	Change:	-50,101	-2,528	-6,406	-3,087	347	-46,223	-45,780
	% Open Interest:		42.5	23.1	31.1	29.6	19.2	40.1
	Analysis:	Huge liquidation most by commercials has taken the OI down sharply.  The large spec remains long, but less than a 2 to 1 ratio.  The small spec is now close to even.  During the coming weeks, it will be interesting to see if spec interest in this market returns.  The strong market versus the USD last week suggests they may be returning to the long side.

*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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