COT Report Data 06 29 2010

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Data and Analysis for Most Recent Release

Legend:	Net Long	Net Short	Position Change

Overview: The total open interest (OI) in the major contracts increased by 45,241 contracts during the period.  The bulk of the increase was in the Japanese yen where the large and small specs were aggressive buyers.  The OI did increase over 5000 contracts in both the euro and the C$.

The spec long USD position was again reduced the past period.  Four weeks ago the long USD positions totaled 208,839 contracts, and they are now down to 75,948 contracts, a reduction from 117,427 in the previous week. The big shifts occurred in the yen where the specs shifted from short to long the yen.  Spec short positions in the pound were reduced, and specs increased their long in the C$.

The largest small spec long ownership is in the C$ with 37.8% of the Market, followed by a 32.1% ownership of the A$.  The small specs biggest short positions are in the SF, 31.4%, the A$ 26.0% and the yen 24.1%.  The largest percentage ownership by the large specs is in the DI, 73.3%, the NZ$ 65.7%, and the A$ 41.1%.  The biggest big spec short positions are in the NZ$ 46.4% and the SF at 43.8%.

			(1) Large Traders		(2) Small Traders		(3) Commercial
		Total OI	Long	Short	Long	Short	Long	Short
USD Index	Contracts:	30,647	22,450	3,186	4,050	1,453	2,690	24,551
	Change:	-1,771	-1,513	-67	-260	177	-85	-1,968
	% Open Interest:		73.3	10.4	13.2	4.7	8.8	80.1
	Analysis:	The feature of this small market is speculator longs and commercial shorts.  Large traders are a 7 to 1 long and the small trader a 3 to 1 long.  There was some very minor liquidation, and it probably continued after the cut off for this report as the dollar weakened.
EUR	Contracts:	302,735	42,689	109,498	47,875	58,765	154,028	76,330
	Change:	5,495	2,258	4,558	-1,613	-2,440	1,313	-160
	% Open Interest:		14.1	36.2	15.8	19.4	50.9	25.2
	Analysis:	There was a modest increase in the OI probable as a result of the increase in spreading to 19.2% of the total OI.  Since the spreading does not show up in the futures only report, the spreading is option activity.  This can by any number of strategies calling for long and short positions in both futures and options.  The total option OI as reported in the preliminary report on Friday June the 2nd was 332,254 contracts.  In the complete report of futures and options the large specs are short 36.2% of the total market, but in the futures only the large spec is long 19.2% of the OI and short 51.8% of the market.  This would imply that the large specs, probably investment bankers, are very active in the euro. Through the end of this report, the specs had yet to cover any of the big short position despite the rally in the euro.
GBP	Contracts:	142,961	18,905	53,818	15,752	34,518	95,036	41,357
	Change:	43	1,634	-9,829	-955	1,295	-2,993	6,279
	% Open Interest:		13.2	37.6	11.0	24.1	66.5	28.9
	Analysis:	Little change in the OI during the period, but the big spec was busy covering some of his short positions.  He still remains almost a 3 to1 short, and the small spec is a little better than a 2 to 1 short.  Spreading does account for 9.3% of the OI so there is an active option trade.  The OI Friday June 2nd showed there were 109,625 options contracts open.  The large spec in the futures only report is short 43.2% of the total OI.
JPY	Contracts:	137,810	51,526	21,861	26,915	25,046	45,933	77,467
	Change:	33,457	21,905	-3,038	7,458	-2,987	404	35,793
	% Open Interest:		37.4	15.9	19.5	18.2	33.3	56.2
	Analysis:	The OI in the yen grew by about 25% as the speculators flocked to the long side of the yen.  The biggest movement was by the large spec who bought almost 22,000 contracts, and is now a 2.3 to one long.  Small specs were also aggressive yen buyers flipping their position to a modest long.  Commercials also flipped their position but to the short side.  The yen option trade has increased and the OI there is 76,097 contracts.
CHF	Contracts:	47,191	7,716	20,690	9,037	14,802	28,037	9,298
	Change:	268	-1,920	714	1,761	113	-74	-1,061
	% Open Interest:		16.4	43.8	19.1	31.4	59.4	19.7
	Analysis:	There was little movement in positions during the period.  Both size specs are committed to the short side of the SF, a curious position when the SF has been very strong once the Swiss National Bank said they would stop intervention.  Perhaps they have info that the SNB is going to alter their plans and try to devalue the Swissy.
CAD	Contracts:	106,508	33,644	14,013	40,302	16,527	25,104	68,510
	Change:	5,316	-4,883	3,160	2,955	301	6,712	1,323
	% Open Interest:		31.6	13.2	37.8	15.5	23.6	64.3
	Analysis:	Large specs reduced the size of their long position while the small specs add to theirs.  Both the large and the small specs are a little better than a 2 to 1 long in the loonie.  The biggest increase in long positions during the period was the commercial who bought 6,712 contracts.
NZD	Contracts:	12,880	8,459	5,973	2,464	1,396	1,957	5,511
	Change:	2,404	1,738	74	-97	91	763	2,239
	% Open Interest:		65.7	46.4	19.1	10.8	15.2	42.8
	Analysis:	There is little feature to this tiny market.  Large specs have both a big long and a big short position.  Small specs have a minor long position in the kiwi.
AUD	Contracts:	68,867	28,304	14,929	22,073	17,913	12,869	30,404
	Change:	29	-1,696	-2,769	563	280	-398	957
	% Open Interest:		41.1	21.7	32.1	26.0	18.7	44.1
	Analysis:	The A$ was once a very popular commodity currency, but that theme has lost its luster and the OI has shrunk big time.  The large spec does remain long 41.1% of the reduced OI.  Small specs have a fairly large share of the market, but they have no real commitment. The A$ OI was up only 29 contracts while the NZ$ was up 2404, a sign that the A$ is out of favor.

*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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