COT Report for 08 10 2010 Data

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Data and Analysis for Most Recent Release

Legend:	Net Long	Net Short	Position Change

Overview: The open interest (OI) was down during the latest period by 16,363 contracts.  The biggest reduction in the OI was in the euro, down 28,265 contracts.  There were small increases in the OI of the A$ 13,362 contracts, and the DI up 5859 contracts.

The short USD and long something else continued to grow.  Last week this number was 151,011 contracts, and the total net USD shorts grew to 190,610 contracts.  As we observed last week, the net short position in the USD and long something else maxed out at 270,220 contracts in December 2009 when the USD rally commenced.

Small specs have the biggest long positions in the C$, 38.8%, the SF, 25.7% and the A$ at 23.7%.  Their biggest percentage short positions are in the yen 21.4% and the SF at 20.3%. 

The large specs biggest long positions are in the DI, 76.8%, the NZ$ at 75.8% and the A$ with 56.2% of the OI.  The largest big spec shorts are in the NZ$ at 25.8%, and the DI 23.4%.

Next weeks markets will be interesting because the USD has shown some recent strength and the USD stopped going down this past week.  Further the big short in the pound is now pretty much cleaned up, so if the short covering is done, that market could be primed for a sell off with any bearish news.

			(1) Large Traders		(2) Small Traders		(3) Commercial
		Total OI	Long	Short	Long	Short	Long	Short
USD Index	Contracts:	29,090	22,347	6,798	4,509	3,012	1,376	18,422
	Change:	5,859	6,643	3,537	403	540	-1,228	1,740
	% Open Interest:		76.8	23.4	15.5	10.4	4.7	63.3
	Analysis:	The OI in the DI surged this week, up 20%.  Most of the new positions were put on by the large spec who added to both sides of the market.  The large spec is now more than a 3 to 1 long in the DI.
EUR	Contracts:	290,287	51,522	55,953	49,951	53,384	148,046	140,281
	Change:	-28,265	846	-8,627	-3,719	-9,775	-6,239	9,091
	% Open Interest:		17.8	19.3	17.2	18.4	51.0	48.3
	Analysis:	The OI declines this week as the option traders reduced their positions.  Spreading open interest declined by 18,954 contracts to 14% of the total market.  All of the groups are evenly balanced, long versus short.  If we judge the spec market views by their positions, it appears their market views are indecisive, and their net position is a small short.  Specs have been short the euro through the entire rally, but now with the EUR/USD acting like a possible market top, it will be interesting to see if the reestablish their shorts.
GBP	Contracts:	164,207	33,646	31,171	25,239	26,741	92,288	93,260
	Change:	-2,907	10,382	-568	2,943	-2,640	-8,166	8,368
	% Open Interest:		20.5	19.0	15.4	16.3	56.2	56.8
	Analysis:	After remaining short during the big pound rally, the big spec finally flipped his position to long with purchases of over 10,000 contracts.. Had the spreading OI not been reduced by 8,607 contracts the total OI would have been higher.   The commercial also flipped his position, to the short side, while the small spec remained a minor short.
JPY	Contracts:	151,231	65,721	12,970	30,658	32,438	48,210	99,180
	Change:	-1,276	4,674	59	-853	428	-734	2,600
	% Open Interest:		43.5	8.6	20.3	21.4	31.9	65.6
	Analysis:	There was not much change in the yen positions during the period.  The large spec remains a 5 to 1 long in the yen.  Small specs are not following the lead of the big specs, and they remain short the yen.
CHF	Contracts:	56.228	16,264	6,293	14,469	11,388	23,947	36,999
	Change:	-5,925	-3,546	1,605	-1,820	2,063	-505	-9,540
	% Open Interest:		28.9	11.2	25.7	20.3	42.6	65.8
	Analysis:	This is a market which seems to be lead by the specs as a safe haven and because it is not the USD or the euro.  Often the CHF market seems to be dominated by specs, now that it appears the SNB has halted intervention. Specs, though they actively reduces their short during the period remain long.
CAD	Contracts:	117,408	47,067	5,045	45,532	16,878	19,726	90,403
	Change:	2,152	8,129	-523	2,335	-1,668	-5,128	7,528
	% Open Interest:		40.1	4.3	38.8	14.4	16.8	77.0
	Analysis:	There was only minimal change in the OI during the period but specs and commercials doubled down on their positions.  The large specs are a 9 to 1 long and the small specs are a little better than a 2 to 1 long.  Both spec groups have a large total long.
NZD	Contracts:	25,036	18,992	6,448	3,411	1,088	1,889	16,756
	Change:	637	-1,361	1,154	181	-275	1,073	-986
	% Open Interest:		75.8	25.8	13.6	4.3	7.5	66.9
	Analysis:	The large spec, probably some type of funds, continue to build a bigger long in the kiwi.  They are about a 3 to 1 long.  Small specs are likewise long about a 3 to 1 ratio.  Total open interest remain small.
AUD	Contracts:	121,946	68,510	14,164	28,463	17,926	21,921	86,804
	Change:	13,362	6,109	895	2,364	1,767	5,995	11,806
	% Open Interest:		56.2	11.6	23.3	14.7	18.0	71.2
	Analysis:	The A$ has regained popularity among the large specs as they have accumulated a long position, now by about a 5 to 1 ratio.  Small specs are also long by about a 2 to 1 ratio.  The A$ and the C$ represent to biggest long positions versus a short USD.

*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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