COT Report July 13th Data

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Data and Analysis for Most Recent Release

Legend:	Net Long	Net Short	Position Change

Overview: During this period the futures traders in the aggregate of all positions flipped from a long to a short USD position.  This is an uncommon event.  The DI remained long the USD and the spec shorts in the euro and the pound, by default left the specs long the dollar.  The Swiss Franc flipped from a short to a long position, shifting over 23,000 contracts to the long side of the Swissy.  Other long spec long currency positions added to the specs portfolio were in the yen, C$ NZ$ and the A$.  The total open interest in the period went down 50,106 contracts.  When the market flips from a long to a short dollar position, it is probably a stronger signal when the OI is increasing rather than liquidating.  It will be very interesting to see if this trend continues.

Small specs largest long positions were in the C$, 39.0% of the OI, the A$, 30.9% of the OI and the Swiss franc, 26.4% of the OI.  Largest small spec short positions were in the A4 24.2% and the pound, 21.2%

The biggest large spec long positions were in the NZ$, 75.5%, the DI, 73.8%, the A4 46.8% and the yen at 44.0%.  Their biggest short positions were in the NZ$ 43.0%, and the pound 34.5%.  In the futures only report the large spec was still short 36.9% of the total OI.  The late week strength in the euro may have run some of these people out. 

			(1) Large Traders		(2) Small Traders		(3) Commercial
		Total OI	Long	Short	Long	Short	Long	Short
USD Index	Contracts:	25,914	19,142	4,848	3,362	1,904	1,812	17,564
	Change:	-2,403	-2,062	-1	-498	-228	-327	-2,658
	% Open Interest:		73.8	18.7	13.0	7.3	7.0	67.8
	Analysis:	The OI decreased modestly as the dollar's secure status as a safe haven is perceived to be slipping.  The large specs remain the big long holders but they did reduce their positions.
EUR	Contracts:	277,596	52,945	80,952	50,161	60,114	137,970	100,009
	Change:	-30,984	2,364	-8,079	-3,888	-1,469	-4,470	3,555
	% Open Interest:		19.1	29.2	18.1	21.7	49.7	36.0
	Analysis:	Spreading OI was reduced by 24,990 contracts down to 13.2% of the total market...Futures only OI was only down 2,630 contracts, and the large spec short position was down to 36.9% of the total OI.  Most of the reduction in the OI was the reduction of spread positions which is primarily in the options.  Specs remain short the euro, by default long the USD even after the sharp euro rally.  There was probably some liquidation of these positions late in the week, after the cut off date for the data in this report.
GBP	Contracts:	145,470	14,782	50,132	18,291	30,837	104,103	56,207
	Change:	-1,516	-3,841	-7,546	1,668	757	7,335	11,950
	% Open Interest:		10.2	34.5	12.6	21.2	71.6	38.6
	Analysis:	Spreading was reduced by 6,677 contracts down to 5.7% of the OI.  Despite a sharp rally in the pound, the large and small specs remained short the pound.  Large specs did reduce their pound short but they remain an unbalanced 3.3 to 1 short.   It is surprising that the market action has not caused more short covering.
JPY	Contracts:	145,021	63,739	15,916	29,420	25,065	46,048	98,226
	Change:	-12,957	4,254	-3,120	-1,079	-2,707	-1,311	7,691
	% Open Interest:		44.0	11.0	20.3	17.3	31.8	67.7
	Analysis:	Spreading OI was down 14,821 contracts and is now only 4.0% of total OI, meaning there was a liquidation in the option trade.  Large specs continue to pile on to the long side of the yen, and are now a 4 to 1 long.  This is one of the new havens for the anti dollar attitude among the large specs.
CHF	Contracts:	56,338	17,811	4,085	14,868	10,234	22,447	40,806
	Change:	6,017	10,954	-10,410	-297	-2,570	-1,935	21,703
	% Open Interest:		31.6	7.3	26.4	18.2	39.8	72.4
	Analysis:	Small specs flipped last week to long CHF and the large specs followed this week with a very large shift to the long side.  The large spec reduced his short position by over 10,000 contracts and increased his long by the same amount.  Perhaps the reported losses of the Swiss National Bank while trying to keep the swissy cheap compared to the euro gave the specs the courage to but the SF.
CAD	Contracts:	99,062	27,912	4,919	38,647	17,863	27,248	71,024
	Change:	-12,787	-910	-12,074	1,288	44	-7,922	4,486
	% Open Interest:		28.2	5.0	39.0	18.0	27.5	71.7
	Analysis:	Reduction in the OI of the C$ was caused by the large spec reducing his short position of the C$ to a very small 5% of the total market.  The leaves the large spec long over a 5 to 1 ratio, while the small specs are a 2 to 1 long.  Small specs hold a very large percentage of the OI here.
NZD	Contracts:	16,798	12,683	7,231	2,375	1,464	1,740	8,103
	Change:	3,839	4,590	1,715	260	162	-1,011	1,962
	% Open Interest:		75.5	43.0	14.1	8.7	10.4	48.2
	Analysis:	Large specs are returning to the long side of this very small market.  Aside from that there is little feature here.
AUD	Contracts:	75,305	35,261	11,852	23,292	18,219	13,847	43,319
	Change:	685	8,863	-6,830	32	-910	-4,284	12,350
	% Open Interest:		46.8	15.7	30.9	24.2	18.4	56.2
	Analysis:	While the OI changed little, there were position shifts in the A$ futures.  The large specs cast a very definitive vote  for the long side of the Aussie, and are now a 3 to 1 long.  Small specs remain interested in the A$ but are fairly evenly split in their opinion.

*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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