COT Report 06 26 2010

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Data and Analysis for Most Recent Release

Legend:	Net Long	Net Short	Position Change

Overview: The only significant change in the open interest (OI) during the period was when the remainder of the C$ June futures contracts expired.  This aside the biggest other change was a growth in the yen OI by 9367 contracts. 

Speculators, both the big and the small remain a net long the USD and short something else, but the position was reduced  to 117,427, down from the previous week 141,002.  The biggest short another currency, and long the USD remains in the euro followed by the pound.  The total long USD short the euro actually went up about 7,000 contracts during the period.  The largest short position in the USD remains against the C$ where the specs were long 48,795 contracts.

Small specs have their largest percentage position in the C$, 36.9% and in the A$ 31.2%.  The largest small spec short positions was in the SF, 31.3%, the yen 26.9%, and the A$ 25.6%.   The large specs biggest % long remains in the DI, 73.9%, followed by the NZ$, 64.2% and the A$ 43.6%.  The largest big spec short position is in the NZ$ 56.3%, the pound 44.5% and the SF 42.6%.  The NZ$ is such a small contract it is perhaps best to just ignore it.  In futures only the large specs are short 50% of the euro. 

We are repeating the euro comments, since this market is so very important: During the reporting period, in the combined futures and option report, the most comprehensive data, the large specs once again started selling the euro.  The total short euro spec position during the period increased to 76,225, up from 69,973 in the previous period.  Since spreading is a very large 18.4% of the total open interest OI, we must look at the futures only report for more information.  In that report the large specs are short 50% of the total OI and only long 18.3%.  In the period, they increased their net short by selling some of their longs.  Since only 0.3% of the futures OI is spreading, this shows us that the big specs, probably funds and investment bankers have lots of covered option positions, straddles and strangles, which amounts to that 18.4% of the OI.

			(1) Large Traders		(2) Small Traders		(3) Commercial
		Total OI	Long	Short	Long	Short	Long	Short
USD Index	Contracts:	32,418	23,963	3,253	4,310	1,275	2,774	26,519
	Change:	-243	-929	359	-240	-591	164	-773
	% Open Interest:		73.9	10.0	13.3	3.9	8.6	81.8
	Analysis:	There was very little movement during the period.  The large spec remains over a 7 to 1 long and the small specs are a 3 to 1 long.  Speculators remain committed to the long side of the USD.
EUR	Contracts:	297,240	40,431	104,940	49,448	61,204	152,715	76,490
	Change:	-2,757	-7,810	1,600	524	-2,634	6,483	230
	% Open Interest:		13.6	35.3	16.6	20.6	51.4	25.7
	Analysis:	During the reporting period, in the combined futures and option report, the most comprehensive data, the large specs once again started selling the euro.  The total short euro spec position during the period increased to 76,225, up from 69,973 in the previous period.  Since spreading is a very large 18.4% of the total open interest OI, we must look at the futures only report for more information.  In that report the large specs are short 50% of the total OI and only long 18.3%.  In the period, they increased their net short by selling some of their longs.  Since only 0.3% of the futures OI is spreading, this shows us that the big specs, probably funds and investment bankers have lots of covered option positions, straddles and strangles, which amounts to that 18.4% of the OI.
GBP	Contracts:	142,918	17,271	63,647	16,708	33,223	97,969	35,078
	Change:	7,688	2,742	681	1,289	-1,033	2,359	6,741
	% Open Interest:		12.1	44.5	11.7	23.2	68.5	24.5
	Analysis:	The OI went up slightly as both the large and the small specs were small buyers.  Large specs remain almost a 4 to 1 short and the small specs are short almost 2 to 1, despite an 800 point rally from the low.  Specs remain a larger percentage short in the pound than in the euro.  There may have been some late in the week short covering.
JPY	Contracts:	104,353	29,621	24,899	19,457	28,033	45,529	41,675
	Change:	9,367	4,580	-2,804	2,794	-2,361	29	12,569
	% Open Interest:		28.4	23.9	18.6	26.9	43.6	39.9
	Analysis:	Recent strength in the yen versus the USD has caught the attention of the large spec who has flipped to the long side of the yen.  Small specs are not in agreement and chose to remain short the yen.  Neither group has a very large commitment to their opinion in the yen.
CHF	Contracts:	46,923	9,636	19,975	7,275	14,688	28,111	10,359
	Change:	2	891	-5,233	-621	-122	-350	5,275
	% Open Interest:		20.5	42.6	15.5	31.3	59.9	22.1
	Analysis:	There was no change in the OI for the period, but the large spec reduced their short in the SF, and the commercial increased their short in the SF by about the same number.  Both the large and the small specs remain about a 2 to 1 short in the SF, which does not seem to be in sync with market action..
CAD	Contracts:	101,192	38,527	10,853	37,346	16,226	18,392	67,187
	Change:	-40,950	852	1,854	-676	-1,786	-34,304	-34,196
	% Open Interest:		38.1	10.7	36.9	16.0	18.2	66.4
	Analysis:	The OI liquidation when a futures contract expires always takes a day longer in the loonie, and was responsible for the sharp reduction.  Large specs remain almost a 4 to 1 long in the loonie while the small specs are a more subdued 2.5 to 1 long. We wonder if the late week break chased out any of the longs.
NZD	Contracts:	10,476	6,721	5,899	2,561	1,305	1,194	3,272
	Change:	1,387	2,392	-559	656	-65	-1,661	2,011
	% Open Interest:		64.2	56.3	24.4	12.5	11.4	31.2
	Analysis:	The very small market did have an increase iof the OI by over 10% during the period.  The large specs and the commercials both flipped positions.  Large specs are now modest longs in the kiwi and the commercials are now short.  The small spec is casting their vote with the big specs and is a 2 to 1 long.
AUD	Contracts:	68,838	30,000	17,698	21,510	17,633	13,267	29,447
	Change:	3,553	2,274	2,611	1,224	-1,690	702	3,278
	% Open Interest:		43.6	25.7	31.2	25.6	19.3	42.8
	Analysis:	Not too long ago the A$ was a very popular futures contract with the OI soaring well above either the pound and the yen.  This is no longer the case as the A$ lost its popularity after the late prime minister proposed the 40% mining tax.  Both the large and the small spec have modest long positions now, and it will be interesting to see if they grow.

*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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