COT Report Data 12 28 2010

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Data and Analysis for Most Recent Release

Legend:	Net Long	Net Short	Position Change

Overview: The open interest (OI) surged during the period, up 75,533 contracts for the period.  All contracts with the exception of the DI increased.  The biggest increase was the C$ 22,305 contracts, followed by the yen, 19,696 contracts and the pound 14,234 contracts.

Specs continued to favor, and added to the short side of the euro and the pound.  They are now short 25,793 contracts in the euro and 17,428 contracts in the pound.  Specs are short the USD and long the yen, SF, C$, the NZ$ and the A$.  The yen and the SF enjoy a safe haven status, and the commodity currency have appeal to the big specs.  The total net position, long other currencies and short the USD increased to 153,539, up from 133,713 in the previous period.

There were no position flips during the week.

Small specs had the biggest long percentage of the market in the yen, 40.8%, the C$, 36.1% and the A$, 26.6%.  On the short side of the market, they were most active in the pound, 27.3%, the yen 27.0% and the euro, 25.4% of the market.

Large specs continue to favor the two smallest markets, the NZ$, 74.0%, and the DI 59.8%, but they are also short over 40% of these two markets.  The safe haven SF has attracted the longs, and they have bought 49.5% of that market.  They also favor the A$, and the C$, 48.1% of those markets.  Large specs are short 32.5% of the pound, and 26.9% of the euro. 

			(1) Large Traders		(2) Small Traders		(3) Commercial
		Total OI	Long	Short	Long	Short	Long	Short
USD Index	Contracts:	26,794	16,034	11,415	4,632	2,259	5,362	12,354
	Change:	-675	170	-54	-437	21	-406	-239
	% Open Interest:		59.8	42.6	17.3	8.4	20.0	46.1
	Analysis:	There was very little movement in the DI as we approached the end of 2010.  Small traders did reduce their long position, and the commercials reduced both long and short positions.  Small traders remained better than a 2 to 1 long.
EUR	Contracts:	215,096	33,478	57,818	53,085	54,539	90,813	65,020
	Change:	5,506	-5,180	7,297	-499	906	10,751	-3,131
	% Open Interest:		15.6	26.9	24.7	25.4	42.2	30.2
	Analysis:	Although there was only a small increase in the OI, the large and small specs both extended their net short positions in the euro.  The specs net short positions increased from 11,911 contracts to 25,793 contracts.  Most of the increase in the euro short positions was done by the large spec.  Small specs remain fairly evenly divided in their market assessment.  Spreading, which represents option activity, continues a very large share of the euro market, 17.5% of the total in the last report.
GBP	Contracts:	93,334	19,811	30,370	18,578	25,446	49,341	31,913
	Change:	14,234	3,500	8,639	-433	3,010	9,963	1,380
	% Open Interest:		21.2	32.5	19.9	27.3	52.9	34.2
	Analysis:	There was a 15 % increase in the OI during the week.  Both spec groups actively increased their short positions in the pound.  Large specs were not unanimous, however, as they also bought over 3000 contracts.  The large number of new spec shorts probably resulted in short covering after the end of the period, and the run up to the 156.40 area.  There was an increase in spreading activity and is not up to 6.0% of the total OI.
JPY	Contracts:	122,708	50,182	20,685	26,612	33,176	39,223	62,156
	Change:	19,696	15,322	-1,394	5,792	1,746	-1,533	19,229
	% Open Interest:		40.9	16.9	21.7	27.0	32.0	52.7
	Analysis:	There was  a large increase in the OI as the big spec extended their long yen positions.  They are now a 2.4 to 1 long.  Small specs and commercials are both short the yen.  The small specs bought the yen and decreased his net short.  Spreading represents 5.5% of the total yen market.
CHF	Contracts:	49,371	24,422	9,954	20,143	9,311	3,400	28,700
	Change:	1,868	-1,166	-2,511	2,703	-1,027	-22	5,053
	% Open Interest:		49.5	20.2	40.8	18.9	6.9	58.1
	Analysis:	The OI grew only slightly during the period, but the long side of the SF remains very popular with specs.  The large specs are a 2.5 to 1 long and the small specs a 2 to 1 long.   The popularity of the SF among the spec crowd is based on the safe haven status versus the euro.
CAD	Contracts:	122,922	58,212	23,734	43,652	16,791	16,497	77,836
	Change:	22,305	18,004	8,788	2,576	2,285	1,045	10,533
	% Open Interest:		48.1	19.6	36.1	13.9	13.6	64.3
	Analysis:	The OI climbed 18% for the week in review with the large specs aggressively adding to their long positions.  They are now long over 48% of the OI and are a 2.4 to one long.  Small specs are also big longs, a 2.5 to 1 ratio.  Together they are long 61,229 contracts of the C$.  Recent trips to parity versus the USD have proved short lives but the specs are betting this time will be different.
NZD	Contracts:	25,090	18,570	10,455	2,529	1,201	3,991	13,434
	Change:	9	790	41	378	-140	-1,159	108
	% Open Interest:		74.0	41.7	10.1	4.8	15.9	53.5
	Analysis:	The total OI changed little but some of the players adjusted their positions.  Large spec bought some more NZ$ contracts and extended their long to 74.0% of the total.  Now, unlike past markets the large spec is also short a big share of the market.  Small specs are now better than a 2 to 1 long and added to their positions.
AUD	Contracts:	131,725	75,626	11,094	35,050	14,845	16,432	101,169
	Change:	9.924	5,994	2,381	3,174	1,343	-409	5,034
	% Open Interest:		57.4	8.4	26.6	11.3	12.5	76.8
	Analysis:	The A$ remains a most wanted currency by the big specs.  They are now long 57.4% of the OI, long by a 6.8 to 1 ratio.  Small specs are likewise long the A$ but with a much more modest commitment.  With the A$ trading above USD parity, the recent floods over a large part of NE Australia may be causing some reassessment of positions, as the heavy rains have harmed the economy by damaging crops and halting exports.  There is some interest showing in options as the spreading of the A$ was up 1,165 contracts and is now 3.5% of a large OI.

*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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