COT Report Data Through 10 14 2010

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Data and Analysis for Most Recent Release

Legend:	Net Long	Net Short	Position Change

Overview: As expected, the expiration of the Sept contracts brought a big reduction in the total open interest (OI), with the total down 190,644 contracts.  The biggest reductions were in the euro and the pound, down a combined 151,912 contracts.  In the DI, the OI changed very little, but over 33% of the contract shorts were shifted from commercial to the large spec position.

The small spec flipped his position in both the pound and the yen.  In both currencies he moved to a small long..  Considering the intervention in the yen, buying that currency did not work out well.

The speculators choice to be long something else and short the USD continues to grow.  This week they are a net short in the USD of 172,388 contracts, a jump of almost 100,000 contracts from last week's 79,766 contracts.  The specs biggest long position is in the A$, 74,136, and the yen 47,164 contracts.  Specs reduced their short positions in the euro and the pound.

The small specs biggest long position of the total futures contracts were in the SF,36.7% the C4, 30.5% and the pound 26.8%.  The largest share of short positions by the little guy is in the pound 37.5% and the euro at 25.1%.  With the long and the short share of the market about even in the euro and the pound, the best we can glean from the info is that the spec does not know what to do.

Among the large spec positions, the biggest share of the long side of the market is in the NZ$, 83.1%, followed by the DI, 72.15, the A$ 57.9% and the SF, 52.5%.  The largest percentage share of the short side of the market is in  the DI 49.6%, the pound 35.6% and the euro 30.4%.  With the DI dominated on both sides of the market  by the big spec,and since it is such a tiny market, the number lacks relevance.

Analysis of the COT report this week has been a challenge because of the contract expiration and the Japanese intervention.  Next week's data may provide some clarifications of the trends. 

Currently the specs are leaning hard on the USD.  Will that continue?  When the USD was under big pressure last December, the total short USD was a little over 270,000 contracts.

			(1) Large Traders		(2) Small Traders		(3) Commercial
		Total OI	Long	Short	Long	Short	Long	Short
USD Index	Contracts:	25,099	18,093	12,447	4,075	2,927	2,060	8,853
	Change:	661	869	9,533	37	1,005	292	-9,340
	% Open Interest:		72.1	49.6	16.2	11.7	8.2	35.3
	Analysis:	While the total OI changed very little, there was a big shift of over 9000 contracts from a commercial short to a large spec short position.  The chances are this is the change in classification of existing trades.  What was formerly a commercial hedge position has been changed to spec position.  The effect is a reduction of the large spec long.  Small specs are not a factor in this small market.  Further using "signals" from the technical behavior of this market to predict the direction of much larger markets is of dubious value, in my opinion.
EUR	Contracts:	215,149	55,455	65,507	52,132	54,107	80,130	68,102
	Change:	-80,990	1,150	-10,482	-6,482	-10,382	-77,689	-62,158
	% Open Interest:		25.8	30.4	24.2	25.1	37.2	31.7
	Analysis:	There was a hearty reduction in the total OI as the Sept contract expired.  Most of the reduction was by commercials, and would suspect that a portion was pricing of hedged contracts probably.  Both size specs reduced their net short positions in the euro.  Positions of all classes of participants is in balance suggesting no consensus where the euro is going.  There was a pick up in spreading activity by 2031 contracts, with the total spreads now equating to 12.8% of the OI.  This reflects in increase in option activity, and suggests banks and hedge funds are busy in the option market.
GBP	Contracts:	83,927	21,659	30,628	23,982	23,086	34,222	26,149
	Change:	-70,922	-682	-6,942	-3,221	-11,643	-65,134	-50,452
	% Open Interest:		25.8	35.6	28.6	27.5	40.8	31.2
	Analysis:	With the OI down almost 71,000 contracts it looked like every one bailed out of the pound.  The reduction in the commercial OI is to be expected with contract expiration.  Spec behavior is more interesting.  Although they were reducing their positions, they were more aggressive covering shorts.  Small actually specs flipped their position to a small long.  The large spec remains with a smaller short than in the previous period.
JPY	Contracts:	147,290	61,663	14,794	31,019	30,724	49,486	96,650
	Change:	-14,024	-4,375	799	1,630	-2,944	-11,239	-11,839
	% Open Interest:		41.9	10.0	21.1	20.9	33.6	65.6
	Analysis:	There was no surge in the OI of the yen which would have implied a leak about the timing of the intervention.  Large specs were over a 4 to 1 long, and the small specs finally flipped their position and ended up with a small long.  Next week should show a big reduction in the spec long OI.
CHF	Contracts:	53,069	27,619	14,087	19,456	8,627	4,913	29,274
	Change:	-24,146	2,335	4,888	-1,442	-1,372	-25,475	-28,098
	% Open Interest:		52.5	26.5	36.7	16.3	9.3	55.2
	Analysis:	The SF, despite the big commercial liquidation, keeps a big OI for the size of this small country.  The reputation as a safe haven in a troubled financial world keeps the spec buying the SF.  Both the large and small specs currently have about 2 to 1 long positions.  There is little additional feature.
CAD	Contracts:	125,073	28,976	12,944	38,086	19,734	50,548	84,932
	Change:	6,573	644	-14,591	140	505	2,811	17,682
	% Open Interest:		23.2	10.3	30.5	15.8	404	67.9
	Analysis:	Strange to see the OI went up a little as the Sept contract expired.  Large specs reduced their short position by over 14,000 contracts and the commercial increased their short by over 17,000.  Possibly part of this may be the shifting of existing trades from large spec to commercial trades.   Specs increased their long positions by over 15,000 contracts and are now about a 2 to 1 long.
NZD	Contracts:	25,755	21,414	4,575	3,476	1,078	865	20,102
	Change:	-2,167	6,766	-696	741	-119	-9,011	-689
	% Open Interest:		83.1	17.8	13.5	4.2	3.4	78.1
	Analysis:	Both the large and small specs are very fond of the kiwi.  The large spec is long 83.1% of the total OI and is a 4,6 to 1 long, while the small specs are about a 3 to 1 long.
AUD	Contracts:	127,791	73,979	16,869	29,626	14,599	20,322	92,458
	Change:	-5,629	4,256	4,061	2,560	289	-11,329	-8,863
	% Open Interest:		57.9	13.2	23.2	11.4	15.9	72.4
	Analysis:	Most of the Sept contract liquidation was done by the commercials.  Specs continue adding more longs to their position.  Large specs are a 4.3 to 1 long and the small specs are a 2 to 1 long.  Commodity currencies are back and the price and OI has been going up.

*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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