COT Report Data 09 21 2010

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Data and Analysis for Most Recent Release

Legend:	Net Long	Net Short	Position Change

Overview: For the data in the COT report through 09 21  2010, the open interest (OI) decreased 9,335 contracts, with the biggest reduction in the yen after the Japanese intervention.  There was also a 9,372 decrease in the OI of the C$.  The OI increased in the A$ and the euro as specs bought additional contracts.

There continues to be a movement to a short USD positions.  Specs do continue to carry a long position in the DI, and they have a 6,414 short pound position, which by default leaves them short the USD.  Spec long positions were reduced in the yen by over 23,000 contracts as the BOJ tried to depreciate the yen.  The commodity currencies all benefitted from new spec buying with the biggest shift in the C$.

Small specs have their biggest long positions in the SF, 36.6%, the C$, 34.2% and the pound 30.2%.  Their largest short positions as a percentage of the total market is in the pound 27.3% and in the euro with 25.0%.  Spec positions in the euro and the pound are both close to even.

The large spec continues to have the biggest share of the market long in the NZ$ with 84.4% of the total.  The DI is a 68.4% long but is offset by a 56.1% short.  Big specs are slao long 55.7% of the A$ and 49% of the SF.  On the short  side besides the DI they have a sizable position only in the pound, 33.5%.

As we mention below the euro is becoming a very active day traders market.  This sometimes precedes a speculative blow off in a market.

			(1) Large Traders		(2) Small Traders		(3) Commercial
		Total OI	Long	Short	Long	Short	Long	Short
USD Index	Contracts:	28,923	19,796	16,223	3,668	3,197	4,600	8,643
	Change:	3,825	1,702	3,776	-407	270	2,540	-210
	% Open Interest:		68.4	56.1	12.7	11.1	15.9	29.9
	Analysis:	The OI increased modestly by 13.2% during the period.  Large traders remain long the DI, but reduced their net long position by over 2000 contracts.  Small specs likewise remain long the DI, but only by 471 contracts.
EUR	Contracts:	222,412	53,350	50,573	54,382	55,675	80,110	81,595
	Change:	7,262	-2,105	-14,934	2,250	1,568	-20	13,492
	% Open Interest:		24.0	22.7	24.5	25.0	36.0	36.7
	Analysis:	It is significant that the large specs and the commercial, changed positions during the period.  The large spec flipped from the short to the longs side as he liquidated almost 15,000 contracts.  The large spec did not cast a bullish vote buying more contracts but rather reduced his longs during the period.  Small specs are big participants in this market but evenly balanced long to short. Spreading increased 7,137 contracts and is now 15.5% of the total open interest. This means traders are doing various strategies of futures and option combo's, as well as option spreads.  Option open interest was 285,497 contracts.  There were 50,483 more put than call options open.  Daily trading volume in the euro futures has been exceeding 300,000 contracts.  With the total OI Friday only 179,502, this means the day traders are very active in the euro.
GBP	Contracts:	80,505	18,224	26,940	24,306	22,003	33,474	27,060
	Change:	-3,422	-3,435	-3,688	323	-1,083	-748	912
	% Open Interest:		22.6	33.5	30.2	27.3	41.6	33.6
	Analysis:	The large and small specs have different positions in the pound.  Large specs are short the pound while the small specs have a token long.  Reflecting some indecision, the large spec reduced both his long and short positions.  Small specs modestly added to their net long, mostly by reducing shorts.
JPY	Contracts:	127,808	40,401	18,390	28,586	25,939	52,343	77,001
	Change:	-19,483	-21,262	3,596	-2,433	-4,785	2,857	-19,649
	% Open Interest:		31.6	14.4	22.4	20.3	41.0	60.2
	Analysis:	The OI was down almost 15% in the aftermath of the Japanese intervention designed to weaken the yen.  The large spec remains a 2.2 to 1 long in the yen even after bailing on over 21,999 contracts.  The small spec remains a small long in the yen.  The specs are voting the BOJ may be finished with the intervention.
CHF	Contracts:	53,186	26,044	12,362	19,487	8,345	6,685	31,509
	Change:	117	-1,575	-1,725	31	-282	1,771	2,234
	% Open Interest:		49.0	23.2	36.6	15.7	12.6	59.2
	Analysis:	Specs have swarmed to the SF as they feel this is a safety bet.  They are over a 2 to 1 long in both large and small categories.  Very little change to note in this period.
CAD	Contracts:	115,701	46,811	18,334	39,517	16,602	23,761	75,153
	Change:	-9,372	17,835	5,390	1,431	-3,131	-26,787	-9,779
	% Open Interest:		40.5	15.8	34.2	14.3	20.5	65.0
	Analysis:	The OI did decline modestly during the period but the big change was a shift in positions.  The commercials reduced their long by 26,787 contracts and reduced their short by over 9700 contracts.  Large specs took most of those positions, increasing both their longs and shorts.  These position changes probably represents reclassification of existing positions.  Large specs and small specs are  now over a 2 to 1 long.
NZD	Contracts:	26,820	22,636	4,228	3,621	1,394	563	21,198
	Change:	1,065	1,222	-347	145	316	-302	1,096
	% Open Interest:		84.4	15.8	13.5	5.2	2.1	79.0
	Analysis:	The large specs continue to buy the kiwi.  There are now 13 large specs long 84.4% of the total market, and are over a 5 to 1 long.  Small specs likewise are long by a 2.5 to 1 margin.  Commercial longs amount to a minuscule 2.1% of the total.
AUD	Contracts:	139,424	77,615	13,338	31,756	16,045	25,356	105,344
	Change:	11,633	3,637	-3,530	2,130	1,446	5,035	12,885
	% Open Interest:		55.7	9.6	22.8	11.5	18.2	75.6
	Analysis:	The large specs, probably funds of some type continue to add to their longs in the A$, now up to a 5.8 to 1 long.  They added longs and reduced shorts.  Small specs continued long with a 2 to 1 ratio. The OI in the A$ has quickly grown to where it is the second largest of the currencies reviewed, and is bigger than the total OI of the pound and the SF combined.  The new highs are attracting a lot of new buyers.

*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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