COT Report Data 09 28 2010

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Data and Analysis for Most Recent Release

Legend:	Net Long	Net Short	Position Change

Overview: The open interest (OI) climbed sharply during the most recent period.  The total OI was up 80,684 contracts with the biggest increase in the euro, up 46,421 contracts.  The OI was also up 11,661 contracts in the A$, and up 8,072 contracts in the pound.  The daily futures volume in the euro has been very heavy.  Several day there was over a 300,000 contract trade, and on Thursday the volume was 435,494.  It is unusual when the volume of the daily trade exceeds the OI but that has been the recent nature of the euro activity.  Trading in the euro options is also very heavy.

Of the eight futures contracts reviewed, the only one where the specs are long the USD is in the DI, and then only by 461 contracts.  Aside from the DI, specs are short the USD against all other currencies.  The biggest spec longs are in the A$ 84,068 contracts, the C$, 54,405 contracts, and the euro 30,702 contracts.  The total long something else and short the USD is now up to 247, 334 contracts, up from 192, 523 in the previous week.  Going back four weeks, the USD short position was only 79,766 contracts.

There were two flips of positions during the period.  In the euro the small spec flipped from a short to a long. In the pound, commercials flipped from a long to a short.

The largest small spec longs as a percentage of the total market are in the C$, 37.2%, the SF, 35.3% and in the pound 30.1%.  Small specs biggest short positions are in the pound, 25.7%, and in the euro, 21.6%.

The big specs largest percentage shares of the market are in the NZ$, 83.2%, the DI, 62.1%, the A$, 53.3% and the SF, 45.9%.  Large specs are probably funds and they are not favoring the short side of the currencies reviewed since they are bearish the USD.  They are short 58% of the DI market and 30.1% of the pound, but their long positions in those two markets are 62.1% and 32.5% respectively, so it is obvious they have no serious bearish convictions.

			(1) Large Traders		(2) Small Traders		(3) Commercial
		Total OI	Long	Short	Long	Short	Long	Short
USD Index	Contracts:	33,482	20,800	19,429	2,762	3,672	9,053	9,514
	Change:	4,558	1,004	3,206	-906	475	4,454	871
	% Open Interest:		62.1	58.0	8.3	11.0	27.0	28.4
	Analysis:	The OI was up over 13% in this very small market.  The change was the selling of the DI buy the large specs and the buying by the commercials.  The small spec is not a big player in this market but did extend his short position.  We are dubious of the claims by some analysts that technical signals in this mini market is a signal for the direction in much bigger markets.
EUR	Contracts:	268,832	67,111	39,660	61,197	57,947	90,577	121,279
	Change:	46,421	13,761	-10,913	6,815	2,272	10,457	39,684
	% Open Interest:		25.0	14.6	22.8	21.6	33.7	45.1
	Analysis:	Open interest grew 17% during the period with large and small specs aggressively buying.  The large specs net movement to the long side of the euro was almost 25,000 contracts. The small specs flipped to the long side of the euro following last week's lead by the big specs.   There was a big increase in spreading which is option activity.  That now accounts for 49,947 contracts or 18.6% of the total OI.  Even after the big flow to the long euro positions the specs are not out of balance longs, meaning there may be room for expansion of these positions.  It is noteworthy that the volume of futures day trading has been exceptionally large, amounting to over 3 and 400,000contracts on some days.
GBP	Contracts:	88,532	26,810	28,791	26,678	22,775	29,992	31,913
	Change:	8,072	8,586	1,851	2,372	771	-3,482	4,853
	% Open Interest:		30.3	32.5	30.1	25.7	33.9	36.0
	Analysis:	The specs attitude toward the pound remains bifurcated with the large specs remaining short and the small specs long the pound.  Further confounding the trade's attitude toward the pound is the commercial who has flipped to the short side of the pound.  None of these groups have a strong bias to either side of the pound.  Perhaps this is why the OI in the pound is small.  Traders lack conviction what to do.
JPY	Contracts:	133,588	45,263	18,331	29,531	27,659	52,174	80,979
	Change:	5,780	4,862	-59	946	1,720	-169	3,978
	% Open Interest:		33.9	13.7	22.1	20.7	39.1	60.6
	Analysis:	The recent Japanese intervention which weakened the yen for a few days has made for a quiet yen trade.  The large spec does remain a 2.4 to 1 long in the yen, adding to his position in the last period.  Small specs are small longs with the commercial favoring the short side f the yen.
CHF	Contracts:	58,697	26,933	8,486	20,718	10,734	9,189	37,620
	Change:	5,512	889	-3,877	1,231	2,389	2,504	6,112
	% Open Interest:		45.9	14.5	35.3	18.3	15.7	64.1
	Analysis:	The OI climbed modestly during the period with the large spec now sporting a 3.1 to 1 ratio long the franc.  The small spec also has a 2 to 1 long the franc as this currency is a refuse for those seeking safety.  The OI is pretty large for such a small country.
CAD	Contracts:	115,236	42,704	15,766	52,820	15,353	23,795	78,200
	Change:	-465	-4,107	-2,568	3,303	-1,249	34	3,047
	% Open Interest:		37.1	13.7	37.2	13.3	20.6	67.9
	Analysis:	The OI did go down a minor amount as the large traders reduced both the long and short positions.  The C$ interest may be suffering because of the perceived economic difficulties of the US, their biggest trading partner.  The large specs and small specs still favor the long side of the loonie by a 2.7 to 1 ratio.
NZD	Contracts:	26,965	21,604	4,334	3,720	1,516	642	20,115
	Change:	-855	-1,032	106	99	122	78	-1,083
	% Open Interest:		83.2	16.7	14.3	5.8	2.5	77.5
	Analysis:	Fourteen large traders, probably funds are long 83.2% of the total OI.  They are long almost a 5 to 1 ratio, while the small specs are a 2.4 to one long.  There was little feature in this small market.
AUD	Contracts:	151,085	80,525	11,629	32,798	17,626	31,305	115,373
	Change:	11,661	2,910	-1,710	1,042	1,581	5,949	10,030
	% Open Interest:		53.3	7.7	21.7	11.7	20.7	76.4
	Analysis:	With the large specs continuing to buy the A$, the OI continues to climb.  The large spec is now a 6.9 to 1 long.  Small specs are likewise long, but a more modest 2 to 1 ratio.  With the OI now the largest with the exception of everything but the euro, how much more money is going to flow into the A$?  Commercials were the biggest buyers and the sellers in the period.

*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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