COT Report data through 11 16 2010

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Data and Analysis for Most Recent Release

Legend:	Net Long	Net Short	Position Change

Overview: This was a week of liquidation for most of the major currency futures.  The total open interest (OI) was down for the week by 27,376 contracts.  The biggest reductions were in the A$ 8,397, the SF, 6,215, and the DI 5,525.  There were small pick ups in the OI of the pound and the NZ$.

There was an acceleration in the rate of liquidation of long other currencies and short USD positions.  The total long other currencies and by default short the USD decreased to 209,528 contracts, down from 268,712 contracts in the previous period.  The C$ was the only currency that had an increase in longs, and then by only 1,217 contracts.  The C$ has the biggest long spec position.  Late last week , after the close of the report, there was more serious liquidation in currency positions.

For the week there were no groups flipping their positions.  With the liquidation of the OI in the yen, it is interesting to note that the futures with the second largest OI is now the Mexican Peso with 147,623 contracts open.  In the peso the big specs are long 78.3% of the OI and the commercials are short 82.8%.  This trade is baffling, but I wonder if this might not be part of a carry trade, USD's flowing into Mexico.

Small specs had their biggest long percentage of the market in the SF, 36.3%, the C$ 32.5%, and the A$ 26.0%.  Small specs largest short percentages were in the yen, 25%, the SF 22.7%, and the euro 20.9%.

Large specs had the biggest percentage longs in the NZ$, followed by the DI 63.5%, the C$, 43.8%, and the pound, 42.7%.  Their largest short positions were in the DI, 32.1%, the SF, 21.3%, and the pound 19.6%.

			(1) Large Traders		(2) Small Traders		(3) Commercial
		Total OI	Long	Short	Long	Short	Long	Short
USD Index	Contracts:	33.668	21,393	10,824	5,110	3,344	5,697	18,032
	Change:	-5,525	-4,795	-8,982	812	-971	-1.888	4,083
	% Open Interest:		63.5	32.1	15.2	9.1	16.9	53.6
	Analysis:	The OI declined by 16% as the large specs aggressively covered their shorts in the DI.  The large spec ended the period long almost a 2 to 1 ratio.  Small specs, while not big participants in the DI, did increase their longs and decreased their shorts.
EUR	Contracts:	256,367	55,986	45,418	62,683	53,635	94,843	114,458
	Change:	-3,297	-5,328	7,505	-2,949	1,495	2,249	-15,029
	% Open Interest:		21.8	17.7	24.5	20.9	37.0	44.6
	Analysis:	While the OI changed little in the aggregate, there was a movement by the large specs to decrease their longs and increase their shorts.  Large specs remain long the euro.  Interesting, the total positions carried by the small specs is larger than those of the big specs, and the small specs did not exit the euro as quickly as the large specs.  Despite the euro's sell off, the specs remain long, but they have reduced the position by over 17,000 contracts from last week.  Spreading, with 42,885 contracts open accounts for 16.7% of the OI, and increased 2,731 contracts during the period.
GBP	Contracts:	108,945	46,559	21,300	24,822	21,524	32,612	61,170
	Change:	3,428	4,347	732	-5,905	483	4,420	1,647
	% Open Interest:		42.7	19.6	22.8	19.8	29.9	56.1
	Analysis:	There was a small increase in the OI, despite long liquidation by the small specs of almost 6,000 contracts.  The small spec position has been reduced closer to even but the large specs remain over a 2 to 1 long and they added to the position.  The total spec position remains long the pound but they did reduce their long by about 2,700 contracts during the week.
JPY	Contracts:	147,033	48,933	24,590	32,287	36,814	59,115	78,930
	Change:	-4,941	-5,656	6,420	-3,882	-3,046	2,919	-9,992
	% Open Interest:		33.3	16.7	22.0	25.0	40.2	53.7
	Analysis:	The large spec continues to sell out his yen long, reducing his net long by 12,000 contracts.  The large specs had a very large yen long during the period ahead of the QEII announcement when the yen appreciated to almost 80 versus the USD.  Despite the sells in the yen the large spec remains a 2 to 1 long.  The small specs parted company with the large ones and are now short the yen.  They did reduce both longs and shorts in the week.
CHF	Contracts:	47,729	18,332	10,160	17,334	10,851	11,126	25,781
	Change:	-6,215	-6,680	-2,114	-432	25	881	-4141
	% Open Interest:		38.4	21.3	36.3	22.7	23.3	54.0
	Analysis:	As hopes grew for settlement of some of the debt issues in Ireland, specs fled the perceived safe haven of the SF.  Large specs moved quickly dumping 6,680 contracts of longs, but remain an unbalanced long.  Small specs reduced minor amount of longs, and remain big market participants in the SF.
CAD	Contracts:	134,631	58,925	19,135	43,786	19,333	28,190	92,432
	Change:	-4,178	-3,385	-6,077	-2,432	-957	1,388	2,606
	% Open Interest:		43.8	14.2	32.5	14.4	20.9	68.7
	Analysis:	There was only a minor reduction in the OI during the period, but the specs who have been long the loonie, made a nominal increase in their longs.  Large spec are now better than a 3 to 1 long.  Small specs, likewise out of balanced longs, made minor reductions in their loonie positions.
NZD	Contracts:	33,423	28,915	755	3,308	876	1,200	32,547
	Change:	1,929	1,950	755	-230	28	209	1,146
	% Open Interest:		86.5	16.4	9.9	2.6	3.6	81.0
	Analysis:	There are 16 large specs long 86.5% of the total OI and they are over a 5 to 1 long.  Small specs are also bullish on the kiwi, long better than a 3 to 1 ratio.  Commercials are long only 3.6% of the OI.
AUD	Contracts:	132,124	52,961	16,322	34,353	19,891	40,162	91,263
	Change:	-8,397	-9,511	924	-3,972	1,009	4,869	-10,546
	% Open Interest:		40.1	12.4	26.0	15.1	30.4	69.1
	Analysis:	The OI was down only 8,397 contracts but the specs reduced their long positions by over 15,000 contracts.  Large specs remain better than a 3 to 1 long even after their sales.  The small spec, also long, is scaling back probably fearful of more credit tightening in China.

*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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