COT Report Data 08 03 2010

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Data and Analysis for Most Recent Release

Legend:	Net Long	Net Short	Position Change

Overview: There was a surge of interest and money flowing into the major currencies during the most recent period.  The total increase in the open interest in the combined report of futures and the delta adjusted options increased by 87,336 contracts.  The biggest increases were in the pound, 23,764 contracts, the euro 19,551, and the C$, 15,939 contracts.  The OI increased in all contracts, even the DI by 312 contracts.

In conjunction with the increase in the OI was a massive increase in spec short USD positions. During the prior week specs were short to USD to the total of 68,086.  This long something else and short the USD ballooned to 151,011, or an increase of 82,935 for the period.

The small specs largest long position remained in the C$, 37.5% of the total market, and the SF at 26.3% of the OI.  The largest small spec short positions were in the CHF, 21% and the euro 19.8%.  The large specs biggest long ownership remained in the NZ$, 83.4%, the DI, 67.6% and the A$ 57.5%.  The big specs largest short positions were in the NZ$ 21.7%, the euro, 20.3% and the pound at 19%.

It will be interesting to see if the open interest and the short dollar position continues to build in the coming week.  On the COT report for data on 12 01 2009, the short USD position peaked at 270,220 contracts, at which time the USD commenced a sustained rally.

			(1) Large Traders		(2) Small Traders		(3) Commercial
		Total OI	Long	Short	Long	Short	Long	Short
USD Index	Contracts:	23,230	15,704	3,261	4,106	2,472	2,604	16,681
	Change:	312	-815	729	-53	291	1,148	-740
	% Open Interest:		67.6	14.0	17.7	10.6	11.2	71.8
	Analysis:	The modest increase in the open interest failed to prevent the DI from being the smallest OI contract we review on a weekly basis.  The DI OI is only about 27% of the size of the Mexican peso contract.  The large specs do remain long the DI, on a little less than a 5 to 1 ratio.  With the persistent down in the USD, you wonder if some of the DI longs might not be long the dollar as part of a hedge against dollar sales else where.
EUR	Contracts:	318,552	50,976	64,580	53,670	63,159	154,284	131,191
	Change:	19,551	1,139	-10,602	4,122	2,224	3,332	16,972
	% Open Interest:		16.0	20.3	16.8	19.8	48.4	41.2
	Analysis:	Despite the continued strength of the euro, the specs cling to small short positions in the euro.  Most of the increase in the OI was in spreading, indicating an increase in option activity.   Spreading OI was up 10,958 contracts to 59,623 or 18.7% of the total OI.  The large spec did reduce his short position by over 10,000 contracts, and both category specs are approaching a neutral position in the euro.
GBP	Contracts:	167,114	23,263	31,740	22,296	29,381	100,453	84,892
	Change:	23,764	7,878	-5,251	4,875	-111	1,877	19,991
	% Open Interest:		13.9	19.0	13.3	17.6	60.1	50.8
	Analysis:	The OI in the pound continues to grow by over 14% and it is now the second largest among the major currencies.  Spreading was up 9,134 contracts and is now 21,101 or 12.6% of the OI.  Large specs who had been a big short of the smaller market have gradually reduced their position and are down to 19% of the total.  Small specs likewise reduced their short and though still short are approaching an even position.
JPY	Contracts:	152,508	61,046	12,912	31,511	32,010	48,944	96,580
	Change:	12,378	11,750	-5,351	1,953	1,790	-3,910	13,354
	% Open Interest:		40.0	8.5	20.7	21.0	32.1	63.3
	Analysis:	The large specs continue to be attracted to the yen, increasing their long and decreasing their short by over 17,000 contracts during the period.  The large spec is now a 4.7 to 1 long.  Small specs are not that enamored with the long side of the yen, and remain a very modest short. Japanese exporters are being hurt by the strong yen, and are among the commercials who are a 2 to 1 short.
CHF	Contracts:	62,153	19,810	4,687	16,290	9,325	24,452	46,539
	Change:	2,900	4,969	-4,799	-412	-157	-1,910	7,603
	% Open Interest:		31.9	7.5	26.2	15.0	39.3	74.9
	Analysis:	Although there was minimal change in the total OI, the large specs were aggressively moving to a strong long position in the franc.  Large specs are now over a 4 to 1 long.  Specs view the SF as a safe haven compared to the euro, pound or the USD.  Small specs are likewise long the franc, but a much smaller percentage of the market.
CAD	Contracts:	115,256	38,939	5,568	43,197	18,546	24,854	82,875
	Change:	15,939	12,295	3,461	3,447	11	-811	11,459
	% Open Interest:		33.8	4.8	37.5	16.1	21.6	71.9
	Analysis:	Large specs continued to favor the long side of the loonie, and are now a 7 to 1 long.  Small specs likewise favor the long side in a larger absolute number, 37.5% of the total OI, but there are some casting their vote for the short side of the C$ also.  While the commodity long concept may be returning to some of these markets, the total OI is quite a bit less than it was at it's peak a few months back.
NZD	Contracts:	24,399	20,353	5,294	3,230	1,363	816	17,742
	Change:	1,480	1,955	570	116	205	-591	705
	% Open Interest:		83.4	21.7	13.2	5.6	3.3	72.7
	Analysis:	Total OI in the NZ$ now exceeds the OI in the DI.  Thirteen large specs hold 83.4% of the OI, and are now a 4 to 1 long the kiwi.  Small specs are also showing some interest in the long side.
AUD	Contracts:	108,584	62,401	13,270	26,099	16,159	15,926	74,998
	Change:	11,012	10,962	2,646	-706	-1,329	348	9,286
	% Open Interest:		57.5	12.2	24.0	14.9	14.7	69.1
	Analysis:	The large specs continue to buy the A$, and are no doubt responsible for some of the recent strength.  The OI is growing but remains less than a few months back when interest the the A$ was very popular.  This may mean there is more money that may flow into the market.  The large specs are now about a 4.5 to 1 long, having bought over 10,000 contracts during the period.  There was further build up in the OI late last week.

*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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