COT Report Data 11 14 2010

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Data and Analysis for Most Recent Release

Legend:	Net Long	Net Short	Position Change

Overview:   The big decrease in the open interest (OI) was because the December contract expired.  The OI went down in all of the contracts except the C$, and that only because of the different time when the contracts were offset.  On December 15, the OI in the C$ futures was down 36,217 contracts as the commercials offset positions.  The total reduction in the OI during the report period was down101,599 contracts.  The largest reduction was in the euro, 49,047 contracts while yen OI was reduced 34,051 contracts.

During this reporting period the specs total positions long another contract and short the USD went up to 137,425 contracts from the previous week's total of 121,930 contracts.  The three contracts where the spec is long the USD is in the DI, the euro, and the pound.  The spec USD long in all three currencies were reduced for the week.  The largest USD short positions remain in the A$, 72,045 contracts, and the C$, 61,917 contracts, and these positions were increased from the prior week.  There was a sizable reduction in the yen spec long, and it is now down to only 2,778 contracts.

There were no positions flipped in the latest period, as most of the attention seemed to be the contract expiration.  Spec positions in the euro are fairly close to even indicating ambivalent attitudes toward market direction.

The small speculator had their biggest share of the long side of the market in the SF, 40%, the C$, 29.6%, the euro 27.6% and the A$ 25.7%.  It should be noted that the euro had a larger short percentage of the market, 29.8% of the total market than their long.  The biggest short share held by the small specs were in the yen 30%, the euro 29.8% and the SF 26.8%.  The largest net longs were in the C$ and the A$.

Larges specs had the biggest long share of the smallest market, the NZ$, 87.0%, and the DI, 63.8%.  Other big spec longs were 51.8% in the A$, and 49.3% in the SF.  The largest percentage net longs were in the A$, and the C$.  On the short side of the market the big specs were short 43.7% of the DI, 35.9% of the NZ$, and 27.0% of the pound.

It will be interesting to see how these markets will trade during the holiday season.  The OI is down, and some traders will be enjoying the holidays.  In thin markets, there can often be exaggerated moves.

			(1) Large Traders		(2) Small Traders		(3) Commercial
		Total OI	Long	Short	Long	Short	Long	Short
USD Index	Contracts:	25,567	16,310	11,181	3,766	2,264	4,441	11,073
	Change:	-9,840	-3,695	593	-1,954	-894	-3,147	-8,495
	% Open Interest:		63.8	43.7	14.7	8.9	17.4	43.3
	Analysis:	Contract expiration resulted in a big reduction in the OI in all bet one of the contracts in this report.  This is a market dominated by the large traders, and they maintain a sizable long.  Small specs likewise are long but not a big factor in this very small market.
EUR	Contracts:	187,398	35,815	45,414	51,760	55,909	72,910	59,162
	Change:	-49,047	2,570	-2,180	710	-3,734	-51,338	-42,144
	% Open Interest:		19.1	24.2	27.6	29.8	38.9	31.6
	Analysis:	The big reduction in the OI came almost exclusively from the commercials getting out of both longs and shorts.  Only the broker and the clearing house knows for sure, but my conjecture is this represents price fixing on cash contracts via give ups and exchanges.  Spreading has been reduced to 14.4% of the OI, but this is still extremely large.  This represents a variety of plays in the option market, attractive trading because of the euro's high volatility.  Both the large and small specs have cast their  vote on the short side of the euro but their positions are small.
GBP	Contracts:	73,947	11,972	19,869	18,559	19,998	40,076	30,739
	Change:	-18,649	-2,160	-6,529	-376	-2,017	-14,079	-8,069
	% Open Interest:		16.2	26.9	25.1	27.0	54.2	41.6
	Analysis:	It is unusual to see all groups reduce their OI as they did this past week in the pound.  Both spec reduced reduced their short positions during the week, and the commercials reduced both long and short positions.  The OI is very small so if someone wants to put on a big position they would move the market.  It remains to be seen if this is what the late week sell off, after the end of this period, was about.
JPY	Contracts:	107,936	35,308	22,251	22,141	32,421	44,928	47,706
	Change:	-34,051	-12,724	-2,430	-7,815	-2,466	-13,959	-29,602
	% Open Interest:		32.7	20.6	20.5	30.0	41.6	44.2
	Analysis:	Liquidation in the yen brought a big reduction in the spec longs positions in the yen, over 20,000 contracts.  No positions were flipped.  Large specs remain long and the small specs are short, an unusual market configuration.  Despite the big spec liquidation the price action in the yen was subdued.
CHF	Contracts:	42,235	20,811	9,708	16,884	11,319	3,588	20,257
	Change:	-2,398	2,796	1,088	1,472	1,700	-6,913	-5,433
	% Open Interest:		49.3	23.0	40.0	26.8	8.5	48.0
	Analysis:	Speculators are unnerved about the Swiss National Bank again grumbling about the high value of the Swissie, and continued to add to their longs.  The large specs are better than a 2 to 1 long, but the small specs are more cautious.  Interesting to see the commercials are almost a 8 to 1 short in the SF.  So far for the year the spec record is a lot better than the commercial, as the specs more out of the euro.
CAD	Contracts:	148,508	44,746	11,561	43,972	15,239	48,075	109,992
	Change:	27,877	-2,309	-1,870	2,121	-2,480	17,873	22,035
	% Open Interest:		30.1	7.8	29.6	10.3	32.4	74.1
	Analysis:	The C$ was the only contract that did not have an OI reduction in the period.  My conjecture is that this has something to do with a different time cut off for the report and the final time when exchanges and give ups can be made. The OI on the 15th went down 36,216 contracts, likely reductions in the bloated commercial positions in this report.  The big spec longs, both big and small spec groups, got even bigger as they market tried to go premium to the USD.  Spreading volume has picked up, 10,192 contracts and represents 7.9% of the total OI.  Could this be the banks and the hedge funds writing options on both sides of parity?  This market is loaded with longs, vulnerable to a sell off if oil or commodities break.
NZD	Contracts:	24,510	21,314	8,793	2,211	959	985	14,758
	Change:	-3,085	-710	5,030	-1009	-513	-1,200	-7,436
	% Open Interest:		87.0	35.9	9.0	3.9	4.0	60.2
	Analysis:	There was small liquidation as the large specs sold new short positions and the commercials  got rid of 7,436 contracts of their shorts.  The large spec, probably funds, own 87% of the long side of the market.  Small specs are a 2.5 to 1 long in the kiwi, but their share of the market is small.
AUD	Contracts:	120,035	62,214	8,231	30,819	12,667	23,537	95,582
	Change:	-12,666	8,107	-2,086	-1,483	-2,511	-20,421	-9,200
	% Open Interest:		51.8	6.9	25.7	10.6	19.6	79.6
	Analysis:	The OI did go down during the period, primarily because commercials reduced both their longs and the shorts.  Both spec groups added to their net long positions and are now long over 72,000 contracts.  Large specs now own 51.8% of the market, and are a 7.5 to 1 long.  The market did break about parity with the USD, but failed again to hold above that lofty level.  While the army of futures longs in the Aussie are frustrated waiting for their pay day, short trader in forex markets are penalized daily because of the big Aussie rate differential.

*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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