COT Report Data Oct 12 2010

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Data and Analysis for Most Recent Release

Legend:	Net Long	Net Short	Position Change

Overview: During the most recent report, the open interest (OI) went down by 39,854 contracts.  The reduction was primarily in the euro with reduction 33,523 contracts.  The A$ was also liquidated by 6440 contracts.  In the euro the OI reduction came from a reduction of 18,709 contracts in spreading.  This implies a reduction in euro options.

The spec short USD position has increased to 307,064 contracts.  The other side of currency longs is a short USD position.  The A$, with spec longs of 85,565 contracts was the largest USD short.  This would be followed by 68,265 C$ longs, 45,876 yen longs and 43,306 euro longs.  There is no contract that the specs are short, aside from the DI.  Specs are short the USD versus everything else. The total spec short in the USD on Dec 1, 2009  was 270,220 contracts.  This went down over the next couple of months as the USD then rallied.

The only group to flip their position during the period was the small spec in the yen moving from a small long to a very small short.

The biggest small spec long percentages of their market is in the SF, 33.6%, the C$, at 31.9%, and the pound, 27%.  On the short side, the small specs are short 21.5% of the pound, and 20.7% of the yen.

Large specs have taken fairly large positions in almost all the currencies.  They are long 80.5% of the NZ$, 53.8% of the A$, and 50.3% of the Swiss Franc.  In the DI they are long 55.6% of the OI but they are also short 59.6 % of that index.  Other large big spec short positions are in the pound, 31.0%, and the SF at 19.2%.  It is obvious the big bets are on the short side of the USD, anticipating the bearish impact of QEII.  It remains to be seen if their is more spec money on the sidelines, wanting to further hit the USD, or is the event fully discounted.

			(1) Large Traders		(2) Small Traders		(3) Commercial
		Total OI	Long	Short	Long	Short	Long	Short
USD Index	Contracts:	35,360	19,673	21,088	3,656	3,815	11,275	9,700
	Change:	345	523	370	649	-232	-715	319
	% Open Interest:		55.6	59.6	10.3	10.8	31.9	27.4
	Analysis:	Despite all the noise about the ravishing effects QEII might have on the USD, surprisingly, there was little change in the OI.  Speculators, though they are short the USD, were buyers last week.  Small specs took a more aggressive stand than the large specs.  Their net short diminished by over 800 contracts.  The DI is not a very actively traded futures contract.
EUR	Contracts:	261,803	65,885	26,930	58,399	54,048	91,830	135,136
	Change:	-33,523	614	-900	-5,536	-8,370	-9,892	-5,544
	% Open Interest:		25.2	10.3	22.3	10.6	35.1	51.6
	Analysis:	The OI was down over 10% last week as the small specs and the commercials reduced their positions, and the option traders (shows up as spreading in the report) reduced positions by 18,709 contracts.  The large spec made few adjustment to their existing long which is about a 2.5 to 1 long.  Small specs are a modest net long in the euro.
GBP	Contracts:	100,637	39,594	31,243	27,220	21,630	29,698	43,638
	Change:	1,957	2,542	3,093	488	986	342	-706
	% Open Interest:		39.3	31.0	27.0	21.5	29.5	43.4
	Analysis:	Despite currency volatility, there was little change in the pound positions during the period.  Large and small specs remain long in the pound but did reduce their net position during the week by marginal amounts.
JPY	Contracts:	161,837	65,923	19,996	33,404	33,455	55,884	101,760
	Change:	1,300	-925	-52	820	1,352	2,776	1,371
	% Open Interest:		40.7	12.4	20.6	20.7	34.5	62.9
	Analysis:	There was little change in the OI of the yen during the week, but the small spec did flip to a very small short in the yen.  Small specs are very evenly balanced in the yen.  The large spec is a better than a 3 to 1 long in the yen but took some profits during the week.  It looks like the small spec is not buying into the advertised safe haven story of the yen.
CHF	Contracts:	61,990	31,179	11,896	20,809	10,949	8,515	37,658
	Change:	-1,667	250	1,856	134	315	-1,024	-2,811
	% Open Interest:		50.3	19.2	33.6	17.7	13.7	60.7
	Analysis:	There was little movement during the period in the SF.  The large spec remains a 2.5 to 1 long, and the small spec is like wise long, about a 2 to 1 ratio.  The decline in the OI was caused by the commercial reducing both his long and his short positions.
CAD	Contracts:	135,955	62,513	20,003	43,420	17,664	24,851	93,116
	Change:	-2,221	521	-2,521	636	422	-1,350	1,907
	% Open Interest:		46.0	14.7	31.9	13.0	18.3	68.5
	Analysis:	The small reduction in the OI was caused primarily by a reduction in option positions and a reduction by the large specs short position.  The large spec is now a 3.1 to 1 long, and the small spec better than a 2 to 1 long.  It remains to be seen if there will be some liquidation now that parity with the USD has been achieved.
NZD	Contracts:	26,437	21,276	4,703	3,948	1,127	1,213	20,607
	Change:	395	-63	-302	126	-459	332	1,156
	% Open Interest:		80.5	17.8	14.9	4.3	4.6	77.9
	Analysis:	Most of the small increase in the kiwi was caused by commercials making modest additions to both their long and their short.  The large specs, thirteen of them, own 80.5% of the OI while the commercial is short 77.9% of the OI.  Small specs are not big players in this market but are better than a 3 to 1 long.
AUD	Contracts:	148,736	80,067	12,356	33,999	16,145	30,401	115,966
	Change:	-6,440	-846	178	-1,128	-1,507	-1,589	-2,235
	% Open Interest:		53.8	8.3	22.9	10.9	20.4	78.0
	Analysis:	There was a small decline of the OI during the period with a 2,876 reduction in spreading (mostly options expiring) and commercials reducing positions.  The large spec is a lop sided 6.4 to one long, holding 53.8% of the OI.  Small specs are involved in the A$ and are about a 2 to 1 long.  Total OI in the A$ is large, trailing only the euro and the yen.

*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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