COT Report Data 10 19 2010

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Data and Analysis for Most Recent Release

Legend:	Net Long	Net Short	Position Change

Overview: The open interest (OI) increased very modestly during the period by 4,946 contracts.  Almost of of the increase in the OI was in the euro which went up 26,265 contracts.  There was liquidation in the C$ 9,325 contracts, the yen, 6,335 contracts, the SF, 4,101 contracts, as well as lessor amounts in the A$ and the pound.  It is a little peculiar to see the big up in the euro and a reduction in the OI in most of the other contracts.

The total USD short and long something else was reduced during the period.  The total went down from 307,064 contracts to 282,947 contracts.  The short USD position was reduced in all oc the currency contracts with the exception of the euro where the USD short went up over 16,000 contracts.  The DI flipped from a short to a long spec position.

Small specs were the biggest participants in the long side of the C$ holding 35.7% of the total.  Other small spec long positions were in the SF, 35.1%, the A$, 25.4%, and the pound, 24.4%.  Small specs biggest share on the short side is in the yen, 22.0% and the pound, 21.5%

The large specs biggest percentage positions is in the NZ$, 79.5%, followed by the SF 42.7%, and the yen 39.8%.  There is a large long and a short in the DI, so these about balance out, and are not that meaningful.  Large specs have the biggest short positions in the pound, 29.1%, and in the SW, 24.2%.

			(1) Large Traders		(2) Small Traders		(3) Commercial
		Total OI	Long	Short	Long	Short	Long	Short
USD Index	Contracts:	38,247	22,748	19,622	4,408	3,515	10,086	14,105
	Change:	2,888	3,075	-1,466	752	-300	-1,188	4,405
	% Open Interest:		59.5	51.3	11.5	9.2	26.4	36.9
	Analysis:	Both size specs flipped to the long side of the DI.  All participants in the DI, a very small market, have net positions that are close to even positions.  This shows a lack of strong commitment to this market.  Large specs are the dominate participants in this market.
EUR	Contracts:	288,068	71,949	26,905	68,929	54,514	99,194	158,652
	Change:	26,265	6,064	-25	10,530	467	7,364	23,516
	% Open Interest:		25.0	9.3	23.9	18.9	34.4	55.1
	Analysis:	The OI in the euro did climb 9% during the period.  Of this total spreading OI went up 2,307 contracts and is now 16.7% of the total.  This represents a pick up in open option positions. Both the small and the large specs increased their long euro position.  The large specs are now a 2.6 to 1 long in the euro, while the small specs are more restrained in their demand for euros.  The euro futures is a favorite of the day traders with daily volume well exceeding the total size of the OI.  On one busy day the trade was a little over 460,000 contracts. Sometimes extremely big volume comes toward the end of a big move.  Monitor the euro closely.
GBP	Contracts:	99,532	35,723	28,940	24,254	21,397	35,450	45,090
	Change:	-1,104	-3,871	-19	-2,966	-233	5,752	1,451
	% Open Interest:		35.9	29.1	24.4	21.5	35.6	45.3
	Analysis:	There was not a lot of position change and volume during the period.  Speculators remain modest longs in the pound but reduced the size of their longs.  From the COT report, it looks like the specs lack conviction about the future direction.
JPY	Contracts:	155,502	62,092	18,366	31,166	34,166	55,155	95,880
	Change:	-6,335	-3,832	-1,630	-2,239	710	-729	-5,879
	% Open Interest:		39.8	11.8	20.0	22.0	35.5	61.7
	Analysis:	The large spec is a 3.3 to 1 long in the yen but did peal out of some of this long during the period.  The small spec disagrees with the big spec and is short the yen.  He added to his net short during the period perhaps anticipating another intervention by the BOJ.  Usually large and small specs are on the same side of the market.
CHF	Contracts:	57,889	24,740	14,000	20,312	10,394	11,466	32,123
	Change:	-4,101	-6,439	2,105	-497	-555	2,952	-5,534
	% Open Interest:		42.7	24.2	35.1	18.0	19.8	55.5
	Analysis:	The OI declined modestly as the large spec liquidated some of his longs and added to his shorts.  Even after the adjustments he remains almost a 2 to 1 long in the SF.  Small specs are in agreement long the SF and own a large 35% of the total market.
CAD	Contracts:	126,630	48,846	16,556	45,266	17,909	26,621	86,268
	Change:	-9,325	-13,667	-3,448	1,846	245	1,770	-6.849
	% Open Interest:		38.6	13.1	35.7	14.1	21.0	68.1
	Analysis:	Large specs, perhaps hedge funds, reduced their loonie longs during the period, but remain about a 3 to 1 long.  Small specs, likewise a lopsided long, held their ground, clinging to over 35% of the total OI.
NZD	Contracts:	27,031	21,477	6,146	3,698	1,130	1,856	19,755
	Change:	594	201	1,443	-250	3	643	-852
	% Open Interest:		79.5	22.7	13.7	4.2	6.9	73.1
	Analysis:	There are 14 large specs long 79.5% of the OI in this small market, about a 3.5 to 1 ratio.  There was little movement in the kiwi during the week but the small spec did reduce his long by 250 contracts.  He remains 3 to 1 longs in this market.
AUD	Contracts:	144,800	72,741	13,229	36,825	17,399	30,491	109,429
	Change:	-3,936	-7,326	873	2,826	1,254	91	-6,537
	% Open Interest:		50.2	9.1	25.4	12.0	21.1	75.6
	Analysis:	There were only minor adjustments in A$ positions during the period.  The large spec remains over a 5 to 1 long but did reduce the position by over 7000 contracts.  Continuing undaunted, the small spec added to his net long and is now over a 2 to 1 long.  It remains to be seen if the interest in the commodity currencies returns next week.

*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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