COT Report Data 11 23 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 in the open interest (OI).  The total reduction in the OI was 37,183 contracts, after 27,376 contracts wer liquidated in the previous week.  The biggest selling came in the C$, down 19,408 contracts.  Only the DI OI went up, and then by only 1008 contracts.  The euro OI was down unexpectedly only 2,365 contracts which means there is new selling coming into the market.

The only contract where the specs are long the USD is in the DI.  Specs are long other currencies, and short the USD in every thing else.  The total USD short has gone down to 155,170 contracts, from the previous week's 209,528 contracts.  The biggest USD shorts remain in the commodity currencies, the C$ 45,283, the A$, 44,361, and the NZ$ 23,516.  The long yen short USD remains high, 24,265 contracts but the euro is down to only 2,881 longs.

The only position flip in the week was the large specs who moved to the short side of the euro.

Small specs had the largest percentage of the long side of the market in the SF, 38.2%, the C$, 35.9% and the A$ 26.1%.  On the short side their biggest market shares were held by the SF 26.5%, and the yen 23.1%.

Large specs held the biggest long positions in the NZ$, 84.3%, the DI 64.1%, and the A$, 36.5%.  Their biggest short positions were in the DI  29.4%, and the pound 23.8%.

			(1) Large Traders		(2) Small Traders		(3) Commercial
		Total OI	Long	Short	Long	Short	Long	Short
USD Index	Contracts:	36,470	22,207	10,193	5,109	3,165	5,909	19,867
	Change:	1,002	813	-631	-1	-179	212	1,835
	% Open Interest:		64.1	29.4	14.7	9.1	17.0	57.3
	Analysis:	Large traders favor the long side of the DI by better than a 2 to 1 ratio, and added to their position in the period.  Small specs are likewise long in this very small market but made little change during the week.
EUR	Contracts:	254,002	44,696	52,689	58,212	47,338	105,025	107,906
	Change:	-2,365	-11,290	7,270	-4,471	-6,298	10,183	-6,551
	% Open Interest:		17.6	20.7	22.9	18.6	41.3	42.5
	Analysis:	The large spec flipped from a long to a short position in the euro.  This is significant, and something I suspected was happening as the OI went up in a down market. Spreading was up 3,214 contracts to 18.1% of the total market.  Interesting to see the commercial and the large specs short the market and the small spec is long.  You would thing that the small spec would be bailing out with the continued market drop, but the OI actually increased 5,959 contracts on the 28th.  With the small spec long almost 23% of this big market, there will probably be more selling.
GBP	Contracts:	104,398	37,282	24,837	24,628	22,190	37,134	52,016
	Change:	-4,547	-9,277	3,537	-194	666	4,521	-9,153
	% Open Interest:		35.7	23.8	23.6	21.3	35.6	49.8
	Analysis:	Large specs moved toward the short side of the pound, reducing their net long by over 12,000 contracts.  They remain a sizable pound long.  With the recent market action, it is surprising to see the small specs a modest long.
JPY	Contracts:	145,133	51,886	23,312	29,156	33,466	56,042	80,307
	Change:	-1,900	2,954	-1,279	-3,131	-3,349	-3,073	1,378
	% Open Interest:		35.8	16.1	20.1	23.1	38.6	55.3
	Analysis:	The small and the large specs continue to be at odds with each other.  The large spec increased their long in the yen and are now better than 2 to 1 long.  Small specs came out of both longs and shorts but remain short.  Recent yen weakness has favored the shorts.
CHF	Contracts:	43,224	14,840	5,947	16,504	11,457	10,534	24,474
	Change:	-4,505	-3,492	-4,212	-830	606	-591	-1,207
	% Open Interest:		34.3	13.8	38.2	26.5	24.4	56.6
	Analysis:	The approximate 10% reduction in the OI was caused by the large spec coming out of longs and shorts.  They remain about a 2.5 to 1 long as the Swissie is sought as a safe haven from the euro situation.  I would doubt their banks are immune from bad European loans, so not sure how far this safety theme is going to carry.  Small specs are still long but sold out some of those positions.
CAD	Contracts:	115,223	37,552	13,416	41,378	20,232	32,868	78,151
	Change:	-19,408	-21,372	-5,720	-2,407	899	4,678	-14,281
	% Open Interest:		32.6	11.6	35.9	17.6	28.5	67.8
	Analysis:	The large spec was very active liquidating almost 15,000 contracts, but remains almost a 3 to 1 long.  Small specs are long by a 2 to 1 margin and hold a sizable 35.9% of the total market.  The Canadian GDP report released today was less than expected.  Perhaps the strong loonie has been hurting their economy.  The market acts like the loonie liquidation is continuing.
NZD	Contracts:	30,969	26,095	5,026	3,230	783	1,644	25,160
	Change:	-2,454	-2,820	-444	-78	-93	444	-1,917
	% Open Interest:		84.3	16.2	10.4	2.5	5.3	81.2
	Analysis:	This market continues to be dominated by sixteen large specs are long 84.3% of the total market.  During the period they made a small reduction in their positions.  Small specs are also long by a 4 to 1 margin.
AUD	Contracts:	129,117	47,117	18,064	33,799	18,491	43,873	88,234
	Change:	-3,006	-5,844	1,742	-554	-1,400	3,711	-3,029
	% Open Interest:		36.5	14.0	26.1	14.3	34.9	68.3
	Analysis:	Large specs remain a hearty long in the A$ despite the fact the market acts like it is printing a high.  The small specs are also long.  During the period both size specs pealed out of some of their longs.  The political and financial turmoil has tarnished the appeal of the risk on currencies.

*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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