COT Report Data 11 02 2010

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Data and Analysis for Most Recent Release

Legend:	Net Long	Net Short	Position Change

Overview: There were small increases in the open interest (OI) of all the contracts with the exception of the SF were the OI was down 1,715 contracts.  The toal increase in the OI was 17,283 contracts.  Those currencies with the biggest increases were the pound, 6,219 contracts, and the C$, 4,011 contracts.  Specs were not compelled to make big changes during the period.

Specs were long the USD only via a long position in the DI.  Specs held long positions in all other currencies totaling 260,084 contracts.  Subtracting the DI long of 9,237 contracts, the results in a USD short of 250,847 contracts.  Last week the USD short was 248,585 contracts.  The biggest short USD's were in the commodity currencies, the A$ and the C$.  The biggest other short the USD is now in the yen where the specs are long 45,737 contracts.  Specs have a bigger long in the yen, now, than they do in the euro.

Small specs flipped their position in the yen from short to long, the only group to change their market vote this week.

Small specs have the biggest share of the long side of the market in the SF, with 36.9%.  Other large small spec longs are in the C$, 36.7%, and the pound 25.5%.  The largest small spec share of the short side of the market is in the pound, 22.6%, and the SF, 21.5%.

Turning to the large spec positions, once again the DI traders are big on the long side, 68.4% and the short side 44.8% of the market.  The DI is a large spec traders market, with the smaller specs probably opting for the forex market.  The largest large spec play is in the NZ$, 82.5% of the total market.  Other large spec longs are in the A$, 46.8%, and the SF, 44.4%.  On the short side, the big specs are short 24.4% of the pound, and 21.5% of the SF.

			(1) Large Traders		(2) Small Traders		(3) Commercial
		Total OI	Long	Short	Long	Short	Long	Short
USD Index	Contracts:	40,847	27,959	19,951	4,708	3,478	7,212	16,449
	Change:	1,694	3,964	1,767	115	10	-2,294	8
	% Open Interest:		68.4	44.8	11.5	8.5	17.7	40.3
	Analysis:	Large specs who dominate this small market increased both their long and their shorts during the week.  They added to their long USD position during the week by over 2000 contracts.   Both speculative categories are now long the dollar, although modestly.  It is surprising that the DI open interest has not gone up more during the recent dollar weakness.
EUR	Contracts:	285,225	65,377	29,498	65,000	57,239	97,249	140,889
	Change:	3,357	-430	2,059	1,713	2,415	-2,784	-5,974
	% Open Interest:		22.9	10.3	22.8	20.1	34.1	49.4
	Analysis:	One of the changes this week came from the commercials who reduced both longs and shorts. Spreading was the other OI change, up 4,857 contracts and now amounts to 20.2% of the total OI.  The total long euro versus the USD was reduced during the week by 3,190 contracts.  Large specs remain better than a 2 to 1 long the euro.  Small specs who have large positions in the euro are fairly evenly balanced longs versus shorts.  The modest changes in positions despite the euro's volatility suggest specs are confused what the next move may be.
GBP	Contracts:	102,272	39,707	24,970	26,055	23,076	31,381	49,097
	Change:	6,219	6,894	-2,307	364	1,400	-820	7,345
	% Open Interest:		38.8	24.4	25.5	22.6	30.7	48.0
	Analysis:	The large specs made a statement in this period as they moved to the long side of the pound, with the change resulting in a new net long of over 9,000 contracts.   The ratio long to short is only a.6 to 1 so they have more room to add to their longs.  On Wednesday and Thursday of last week, after the end of the reporting period, the CME open interest climbed by over 5,000 contracts.  Small specs are involved in the pounds trade but fairly evenly balanced in their position.
JPY	Contracts:	158,558	62,407	18,293	32,290	30,667	54,547	100,284
	Change:	2,031	1,392	-1,245	784	-2,631	-1,307	4,744
	% Open Interest:		39.4	11.5	20.4	19.3	34.4	63.2
	Analysis:	Both the large and small specs added to the longs and reduced shorts in the yen this week.  The large specs are now a 3.4 to one long in the yen.   Small specs flipped their position this week from short to a very nominal long.  Increase in the specs yen long was 6,050 contracts.
CHF	Contracts:	52,020	23,118	11,192	19,201	11,195	8,239	28,171
	Change:	-1,715	-1,302	-1,165	-126	860	-518	-1,642
	% Open Interest:		44.4	21.5	36.9	21.5	15.8	54.2
	Analysis:	Specs remain long the SF but did reduce their collective long by 1,123 contracts.  Large specs remain better than a 2 to 1 long.  Small specs are not as big a net long but do own 36.9% of the total market.  Late week, after the end of the period, the euro started to lose to the SF, but we will not know who is involved until next week.
CAD	Contracts:	119,949	41,159	19,400	44,055	18,958	28,709	75,566
	Change:	4,011	3,358	2,681	80	1,576	799	-21
	% Open Interest:		34.3	16.2	36.7	15.8	23.9	63.0
	Analysis:	The OI climbed over 4,000 contracts with the large specs increasing their long positions and the small specs were a net seller.  The total spec C$ long was reduced by 820 contracts.  Both spec groups have out of balanced long positions.  The OI on the first two days after the end of this report went up over 11,000 contracts.  With the C$ gaining on the USD, we can assume there was new spec buying late in the week.
NZD	Contracts:	28,353	23,393	4,245	3,604	1,202	1,356	22,906
	Change:	1,599	1,816	-1,461	12.7	4.2	-217	2,928
	% Open Interest:		82.5	15.0	12.7	4.2	4.8	80.8
	Analysis:	Thirteen large specs control 82.5% of the market, and they added to this position during the week.  They are now a 5.5 to 1 long.  Small specs are likewise a 3 to 1 long in the kiwi.
AUD	Contracts:	140,157	65,653	15,910	34,438	19,530	33,323	97,975
	Change:	105	-2,094	3,242	-880	1,452	1,199	-6,468
	% Open Interest:		46.8	11.4	24.6	13.9	23.8	69.9
	Analysis:	Although there was little change in the total OI there were some position shifts.  Both spec groups reduced their longs and increased their shorts.  This amounted to a reduction in the spec position from last week of 7,667 contracts.  The large specs remain better than a 4 to 1 long.  Small specs are long but not nearly as aggressive.

*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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