COT Report Data 10 26 2010

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Data and Analysis for Most Recent Release

Legend:	Net Long	Net Short	Position Change

Overview:  The total open interest (OI) in the latest period decreased by 27,418 contracts.  The largest decrease was in the C$, down 10,692 contracts.  There were also large decreases in the OI of the euro, down 6,200, the A$, down 4,748 contracts, and the SF, down 4,153 contracts.  Additionally there were small increases in the OI of the yen and the DI.

Specs continue to liquidate some of their short USD positions.  When, for example, specs are long the A$, traded on the CME in Chicago, and since this contract is settled in dollars, this means they are short the USD.  Specs are long every currency except the DI, where they have a small long of 6,939 contracts.  The total short USD, long something else cam down this past week to 248,585 contracts, down from 282,947 in the previous week.  The biggest net spec longs are in the A$, 72,329, the C$, 46,677 contracts, and the euro, 46,830 contracts.  The spec reduced over 10,000 contracts of longs in both the C$ and the euro.

There were no flips of positions this week.  The big feature was liquidation of some of the USD shorts.

Small specs had the largest long percentage of the market in the  C$ at 37.9%, followed by the SF at 36% of the market, and the A$ with 24.2% of the market.  Their largest short positions were in the pound, 22.6%, and the yen 21.3%.

The Di is dominated by large specs on both sides of the market, long 61.3% and short 46.4%, so their positions are offsetting.  The biggest large spec longs are in the NZ$, 80.6%, the A$, 48.4%, and the SF, 45.4%  The large spec longs have their biggest shorts in the pound, 28.4%, and the SF with 23%.

			(1) Large Traders		(2) Small Traders		(3) Commercial
		Total OI	Long	Short	Long	Short	Long	Short
USD Index	Contracts:	39,153	23,995	18,184	4,593	3,439	9,506	16,442
	Change:	906	1,247	-1,438	185	-47	-580	2,337
	% Open Interest:		61.3	46.4	11.7	8.9	24.3	42.0
	Analysis:	There was a small increased in the OI during the period.  Speculators, both large and small, added to their long positions in the USD and reduced shorts.  Long positions in the DI by the specs is modest.
EUR	Contracts:	281,868	65,807	27,440	63,287	54,824	100,033	146,863
	Change:	-6,200	-6,142	534	-5,642	309	839	-11,789
	% Open Interest:		23.3	9.7	22.5	19.5	35.5	52.1
	Analysis:	With the volatility and the very large daily trading volumes in the euro, it is a surprise to find the OI went down for the period.  The reduction in the OI came from large and small specs who were reducing their long positions.  Large specs remain a 2.4 to 1 long in the euro while the small spec is only a modest long.  Spreading increased 4,745 contracts to 18.7% of the total market.  This is large option activity, probably strangles and straddles designed to profit from time decay in option values.
GBP	Contracts:	96,053	32,813	27,278	25,691	21,676	32,201	41,752
	Change:	-3,480	-2,910	-1,662	1,437	279	-3,249	-3,338
	% Open Interest:		34.2	28.4	26.7	22.6	33.5	43.5
	Analysis:	Large specs made small reductions in both their long and short positions, while the small specs added to theirs.   Both spec groups are small longs.  With the increased interest in currency trading it is perplexing why the OI in the pound has not grown more. Could this be attributed to a conflicting appraisal of the fundamentals regarding Britain's economic recovery?
JPY	Contracts:	156,528	61,016	19,538	31,506	33,298	55,854	95,541
	Change:	1,026	-1,076	1,171	341	-868	699	-340
	% Open Interest:		39.0	12.5	20.1	21.3	35.7	61.0
	Analysis:	Little change in the OI.  The large specs reduced their long position and increased their short while the small traders did the opposite.  The large specs have a better than 3 to 1 long in the yen, while the small specs are very modest shorts.  So far the large specs are making the money.  The total yen spec long was reduced by 1,038 contracts in this period.
CHF	Contracts:	53,735	24,420	12,357	19,327	10,335	8,757	29,812
	Change:	-4,153	-320	-1,643	-985	-60	-2,709	-2,311
	% Open Interest:		45.4	23.0	36.0	19.2	16.3	55.5
	Analysis:	OI in the SF declined by 7.7% in the period as the specs reduced positions.  Both large and small specs remain around a 2 to 1 long in the SF. For the week, specs increased their net long in the franc by 398 contracts.
CAD	Contracts:	115,937	37,801	16,718	43,975	17,381	27,910	75,587
	Change:	-10,692	-11,045	163	-1,291	-528	1,290	-10,681
	% Open Interest:		32.6	14.4	37.9	15.0	24.1	65.2
	Analysis:	The OI was down over 10,000 contracts, primarily because the large spec sold over 11,000 contracts of their longs.  Small specs are over a 2 to 1 long in the C$, and hold a very large per cent of the total OI.  Specs reduce their total net long position in the C$ by 11,972 contracts.
NZD	Contracts:	26,754	21,577	5,706	3,604	1,070	1,573	19,978
	Change:	-277	100	-440	-94	-60	-283	223
	% Open Interest:		80.6	21.3	13.5	4.0	5.9	74.7
	Analysis:	The large specs continue to dominate the futures market for the kiwi.  Fourteen large specs are long 80.6% of the total OI, and short only 21.3%.  Likewise, the small spec is an unbalanced 3+ to 1 long.  Ibviously this is a very small market
AUD	Contracts:	140,051	67,747	12,669	35,319	18,079	32,124	104,443
	Change:	-4,748	-4,994	-560	-1,506	680	1,633	-4,986
	% Open Interest:		48.4	9.0	25.2	12.9	22.9	74.6
	Analysis:	The specs remain firmly entrenched on the long side of the A$ with the large spec a 5.4 to 1 long despite liquidating almost 5,000 of their longs.  Small specs are likewise long, but only by a 2 to 1 ratio.  It looks like there might have been some profit taking when the A$ approached parity with the USD.  The total long spec position in the A$ was down 6,619 contracts from the previous 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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