COT Report 07 10 2010

To Subscribe to alerts when a new COT report is published (weekly) click here and choose "subscribe" on the weekly COT alerts field, and click to update your existing account or register a new one.

Data and Analysis for Most Recent Release

Legend:	Net Long	Net Short	Position Change

Overview: The total open interest (OI) increased by 42,023 contracts during the period with the biggest increase 20,168 yen contracts.  Most of the increase in the yen was commercial selling and spec buying.  Speculators continue to collectively favor the long side of the dollar but the total position long dollar and short something else slipped to only 32,074 contracts.  Four weeks ago long dollar contracts was up at 208,839 contracts.  The biggest spec long is now in the C$.

The only group to flip during this period was the small spec who aggressively moved to the long side, parting company with the big spec who remains short the Swissie.

The small specs biggest positions, as a percentage of the total market was in the C4, 33.4%, the A$ 31.2% and the SF with 30.1% of the market.  The largest small spec short positions was in the A$ 25.6% and the SF at 25.4% of the total. 

The biggest long percentage positions of the big specs were in the DI, 74.9%, the NZ$ 62.5% and the yen 37.7%.  The biggest large spec short positions were in the NZ$ 42.6%, and the pound 39.2%.  In the futures only report the large spec is short 41.7% of the euro.

			(1) Large Traders		(2) Small Traders		(3) Commercial
		Total OI	Long	Short	Long	Short	Long	Short
USD Index	Contracts:	28,318	21,204	4,849	3,860	2,132	2,140	20,222
	Change:	-2,329	-1,247	1,663	-190	670	-550	-4,328
	% Open Interest:		74.9	17.1	13.6	7.5	7.6	71.4
	Analysis:	There was a small reduction in the OI, mostly because the commercials were reducing their short positions.  Both the large and small specs were reducing their longs and increasing their shorts.  The large specs remain a 4.3 to 1 long and the small specs are almost a 2 to 1 long.
EUR	Contracts:	308,580	50,581	89,032	54,049	61,583	142,439	96,454
	Change:	5,845	7,892	-20,466	6,174	2,819	-11,589	20,124
	% Open Interest:		16.4	28.9	17.5	20.0	46.2	31.3
	Analysis:	The OI increased only modestly, 5,845 contracts during the period, and the spreading activity went to 19.9% of the total OI, up 3,368 contracts.  The large spec was busy during the period reducing his short positions by 20,466 contracts and increasing his long by 7,892 contracts.  There was more evidence of large spec short covering in the futures only report where the spec reduced his net short by 34,761 contracts.  Large specs remained short 41.7% of the futures market.  Commercials were on the other side of this trade.  Large specs remain short the euro and the small spec is fairly balanced.
GBP	Contracts:	146,986	18,624	57,679	16,623	30,079	96,768	44,257
	Change:	4,025	-281	3,860	871	-4,438	1,732	2,900
	% Open Interest:		12.7	39.2	11.3	20.5	65.8	30.1
	Analysis:	The OI climbed a modest amount as the largest specs added to their short positions.  Over 10.2% of the OI is now in the form of spreads in the option market.  The large spec remains over a 3 to 1 short in the combined futures and option report.  In the futures only report, the large specs are short 45.&% of the OI compared to39.2 in the combined report.  Despite strength in the pound versus the dollar, the spec short have remained.
JPY	Contracts:	157,978	59,485	19,037	30,499	27,772	47,360	90,536
	Change:	20,168	7,960	-2,824	3,584	2,726	1,426	13,068
	% Open Interest:		37.7	12.1	19.3	17.6	30.0	57.3
	Analysis:	The OI grew by 15.8% during the period, led by large spec buying.  As the OI grows, the option spreading like wise expanded and now represents 13.1% of the total OI.  The small specs are only minor longs in the yen, but the big spec is now over a 3 to 1 long.
	Contracts:	50,320	6,857	14,495	15,164	12,905	24,382	19,104
	Change:	3,129	-859	-6,194	6,128	-1,997	-3,655	9,805
	% Open Interest:		13.6	28.8	30.1	25.4	48.5	38.0
	Analysis:	The increase in the OI this period was only 6% but there were some major shift in positions.  The small spec, an active an aggressive trader in the SF flipped from a short to a long, and were buyers of over 6000 contracts.  Large traders covered over 6000 contracts of their shorts, but they still remain a 2 to 1 short.  Note the small traders have a bigger stake in this market than the big traders, and are opposite the big traders.
CAD	Contracts:	111,850	28,822	16,993	37,359	17,819	35,170	66,538
	Change:	5,352	-4,822	2,980	-2,943	1,292	10,066	-1,971
	% Open Interest:		25.8	15.2	33.4	15.9	31.4	59.5
	Analysis:	A modest increase in the OI with both spec groups decreasing their longs and increasing their shorts.  Option spreading is now up to 9.4% of the total OI.  The small spec remains a 2 to 1 long and the market rewarded this position after the cut off date for this report.  The big specs have liquidated their longs to the extent they are now a smaller player in the market than the little spec.
NZD	Contracts:	12,959	8,093	5,516	2,115	1,302	2,751	6,141
	Change:	79	-366	-457	-349	-94	794	630
	% Open Interest:		62.5	42.6	16.3	10.0	21.2	47.4
	Analysis:	Specs reduced positions in this very small market.  The large spec is the featured player, long 62.5% of the OI and short 42.6.  All groups are fairly evenly balanced in the kiwi.
AUD	Contracts:	74,620	26,398	18,682	23,260	19,129	18,131	29,979
	Change:	5,764	-1,906	3,752	1,187	1,216	5,262	-425
	% Open Interest:		35.4	25.0	31.2	25.6	24.3	40.2
	Analysis:	The large specs and the currency funds no longer have the huge presence in the A$, and they further reduced their net long during the period.  Small specs have become more active in this market and favor 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.

Click here for previous COT Analysis Postings  |  Click here for CFTC page about the COT Report