COT Report Data 08 31 2010

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Data and Analysis for Most Recent Release

Legend:	Net Long	Net Short	Position Change

Overview: During the period the open interest (OI) of the eight futures contracts reviewed went up 12,491 contracts.  The biggest increase was 16,135 contracts in the C$.  There, the large spec aggressively sold the contract and flipped to a short position.  The OI also went up in the pound by 5739 contracts as both the small and the large specs were heavy sellers.  OI went down by over 4000 contracts in the DI and the euro and over 5000 contracts in the A$.

The total USD spec positions remained short 79,766 contracts, down from 129,687 in the previous week and down from 190,610 four weeks ago.  This is calculated by taking total spec positions in a futures contracts.  If, for example, this week they are long 52,441 contracts in the Aussie dollar, that means they are short that amount of USD contracts.  Those contracts are traded in and priced in dollars therefore a long A$ is a short USD position.  For the past four weeks the spec position in the USD has been going down.  The spec increased his USD long positions versus the euro and the pound this period.

Small specs had the biggest percentage long positions in the C$, 33.3%, the SF, 29.2%, and the A$ with 23.3% of the total market.  The largest spec short positions were in the eurp 23.4% of the total OI, and the yen with 23% of the total.

Large specs once again had the biggest percentage positions in the DI, 69.5%, the NZ$, 60.7% and the A$ at 49.4%.  The biggest large spec short percentage positions were in the C$, 24.3%, and the euro at 23.4%.

It is an uncommon occurrence when a group flips from one position to another.  This week we had the large spec flipping to the short side of the C$.  In the pound, the small spec aggressively joined the large specs on the short side of the pound.

			(1) Large Traders		(2) Small Traders		(3) Commercial
		Total OI	Long	Short	Long	Short	Long	Short
USD Index	Contracts:	24,712	17,170	2,220	4,924	1,860	1,722	19,736
	Change:	-4,623	-4,218	-3,471	-535	-365	-4	-823
	% Open Interest:		69.5	9.0	19.9	7.5	7.0	79.9
	Analysis:	There was orderly trade liquidation during the period by speculators.  The large spec reduced his long position by over 4200 contracts.  His sport position in the DI was already small and he reduced it by over half of the previous total.  The large spec remains a 7.7 to 1 long.  Small specs also remain long by a 2.6 to 1 margin.
EUR	Contracts:	306,496	50,242	71,835	52,442	57,204	159,750	133,395
	Change:	-4,341	-3,044	955	-3,473	-1,163	607	-5,702
	% Open Interest:		16.4	23.4	17.1	18.7	52.1	43.5
	Analysis:	The euro OI is over 12 times larger than the DI, yet the change in the OI was about the same.  Spreading increased 1,568 contracts to 14.4% of the total OI, but there was little change in euro positions.  Note the small spec's percentage of the long and short position is about the same.  Both groups of specs reduced their long euro positions by over 3000 contracts during the period.
GBP	Contracts:	163,428	24,108	36,751	26,497	30,989	102,484	85,348
	Change:	5,739	-5,204	4,810	440	5,286	10,118	-4,740
	% Open Interest:		14.8	22.5	16.2	19.0	62.7	52.2
	Analysis:	Despite only a modest increase in the OI, there was a decisive shift by the specs to the short side of the pound.  The large spec was already short and expanded that position by decreasing longs and adding shorts.  The small specs flipped, aggressively, from long to short.  Neither  spec group is an unbalanced short, so there may be more selling pending.
JPY	Contracts:	159,341	61,182	11,696	30,731	36,648	56,923	100,491
	Change:	33	-1,421	-178	-3,433	-671	4,399	394
	% Open Interest:		38.4	7.3	19.3	23.0	35.7	63.1
	Analysis:	The change in total OI for the period was small 33 contracts.  With the government threatening to take action to weaken the yen, specs reduced some long positions.  The large spec remains a 5 to 1 long, but the small specs continues to be short the yen.
CHF	Contracts:	66,906	20,737	8,148	19,548	11,005	24,160	45,292
	Change:	4,825	492	454	2,547	400	1,325	3,510
	% Open Interest:		31.0	12.2	29.2	16.4	36.1	67.7
	Analysis:	One of the experts commented this week that the SF was the new mark, and the SF would remain firm for the next decade.  Small specs did add to their long, and the large specs are about a 2.5 to 1 long.  OI is large as specs favor this currency as opposed to the euro and perhaps the USD.
CAD	Contracts:	127,124	30,067	30,853	42,268	22,164	47,963	67,281
	Change:	16,135	2,813	22,665	2,795	1,709	10,122	-8,644
	% Open Interest:		23.7	24.3	33.3	17.4	37.7	52.9
	Analysis:	A peculiar week for the loonie.  There was a sizable increase in the OI as the large spec sold heavily and flipped his position from long to short in the C$.  With a large evenly balanced long to short in the big spec position, this will probably either be given up on an exchange, or liquidated prior to expiration of the Sept contract.  Small specs have not followed the lead of the big traders and remain almost a 2 to 1 long.
NZD	Contracts:	20,099	12,193	5,236	2,950	2,185	4,956	12,678
	Change:	-172	-2,738	988	-393	-40	2,959	-1,120
	% Open Interest:		60.7	26.1	14.7	10.9	24.7	63.1
	Analysis:	The large spec did peel out of a big part of his long and the commercial faded the trade.  Really no feature in this very small market.
AUD	Contracts:	110,297	54,491	10,346	25,709	17,414	24,944	77,385
	Change:	-5,101	-4,297	-1,465	1,023	286	-2,404	-4,499
	% Open Interest:		49.4	9.4	23.3	15.8	22.6	70.2
	Analysis:	There was a small reduction in the OI with the large spec scaling back his long.  He still remains a 5 to 1 long.  With the recent strength in the A$ it is surprising to see the OI was not building.  The small specs are becoming more actively involved, but still remain fairly evenly balanced.  Spreading is now up to 4.7% of the total OI indicating a pick up in option trading.

*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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