COT Report Data 01 04 2011

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Data and Analysis for Most Recent Release

Legend:	Net Long	Net Short	Position Change

Overview:  Participants in currency futures continued to add positions, and increased the open interest (OI) during the period.  The total OI increased by 26,927 contracts.  The largest increase was in the Yen, 18,779 contracts, and followed by a 8,186 increase in the C$.

Those spec holding long contracts in the USD are far outnumbered by those who are short.  Specs are short the euro and the pound by a total of 46,029 contracts, which by default leaves them long the USD.  Specs are long the yen, SF, C$, NZ$ and the A$, which leaves them short the USD.  The total of these position is up to 224,864 contracts.  Subtracting the short euro and pound positions, and adding the 270 contracts specs are long the DI, from the 224,864 positions which are USD shorts, this gives us a spec short position in the USD of 178,565 contracts. This is up from the previous week's 153,539, and the biggest USD short position since 209,528 contracts on 11 16 2010.

The only position flip for the week was in the DI.  There the big specs sold enough of the DI to end up moving to the short side.

Small specs had the biggest share of the long side of the markets in the SF, 42.2%, the C$, 34.7%, and the A$ with 26.4%.  There biggest participation on the short side of the market were in the pound, 27.8%, and the euro 25.2%.

Large specs again were the biggest players in the NZ$, and the DI, the two very small markets.  They also have big short positions so their numbers are of minimal importance.  Other big longs were in the A$, 56.9%, the C$, 50.5%, and the SF, 48.4%.  Large specs had the biggest short positions in the pound, 32.4%, and the euro, 27.2%.

			(1) Large Traders		(2) Small Traders		(3) Commercial
		Total OI	Long	Short	Long	Short	Long	Short
USD Index	Contracts:	28,106	18,598	19,870	4,167	2,625	4,439	4,709
	Change:	1,312	2,564	8,455	-465	366	-922	-7,645
	% Open Interest:		66.2	70.7	14.8	9.3	15.8	16.8
	Analysis:	There was only a modest change in the OI but the large specs were were active.  They aggressively sold over 8,000 contracts to flip their position to the short side.  The market action after the end of this report did not reward those short the DI.
EUR	Contracts:	213,418	34,859	57,929	51,146	53,750	89,236	63,562
	Change:	-1,680	1,381	111	-1,940	-789	-1,577	-1,458
	% Open Interest:		16.3	27.1	24.0	25.2	41.6	29.8
	Analysis:	There was little position change in the euro over the year end.  The large specs remain short, the commercials are long, and the small spec is a modest short.  The euro did sell off after period's end and the OI increased.  Normally increasing OI in a down market is bearish.  Spread OI is now 17.9% of the total.  This represents a variety of option strategies that result in spreading.
GBP	Contracts:	93,438	17,653	30,299	18,306	26,015	52,169	31,814
	Change:	104	-2,158	-71	-272	569	2,829	-99
	% Open Interest:		18.9	32.4	19.6	27.8	55.8	34.0
	Analysis:	Like the euro, there was little position change during the period.  Both size specs remain firmly on the short side of the pound, and modestly enhanced those positions.  Unlike the euro, the pound remained range bound after the end of the period
JPY	Contracts:	131,486	66,057	27,245	28,418	29,653	40,667	78,244
	Change:	18,778	15,875	1,806	1,806	-3,523	1,443	16,088
	% Open Interest:		46.7	19.3	20.1	21.0	28.7	55.3
	Analysis:	Large specs are big, 2.4 to 1 longs in the yen and they added to this length during the period.  The small specs continue to be short the yen although they are now approaching an even position.  After the end on the period, there was a sell off in the yen which resulted in some liquidation, probably from the big spec longs.
CHF	Contracts:	50,734	24,568	10,906	21,404	9,020	3,354	29,401
	Change:	1,363	146	951	1,261	-291	-46	701
	% Open Interest:		48.4	21.5	42.2	17.9	6.6	58.0
	Analysis:	The SF continues to be the safe haven for specs who are afraid of the shaky outlook for the euro.  Both large and small specs are more than a 2 to 1 long, and the small spec added during the period.  The late week USD rally may have chased some of these longs to the exit.
CAD	Contracts:	129,178	65,241	27,223	44,827	17,561	15,948	81,232
	Change:	8,186	7,029	3,489	1,175	770	-549	3,396
	% Open Interest:		50.5	21.1	34.7	13.6	12.3	69.2
	Analysis:	Speculators remain firmly committed to the long side of the commodity currencies, and the C$ is very popular.  Both the large and small specs added to their positions during the week. With the C$ trading at a small premium to the USD and the spec so very long, this market might be vulnerable to a bearish surprise.  West Texas Crude is currently trading at $88/barrel and forecast to return to $95/100 by the experts.  If they are wrong, where will the loonie trade if crude goes back to $80?
NZD	Contracts:	26,443	21,162	10,431	3,071	1,010	2,210	15,002
	Change:	1,353	2,592	-24	542	-191	-1.781	1,568
	% Open Interest:		80.0	39.4	11.6	3.8	8.4	56.7
	Analysis:	The big specs added to their long in this market and now own 80% of the total.  Small specs are not big participants in this market but are a 3 to 1 long.
AUD	Contracts:	129,238	73,527	11,162	34,181	13,563	16,603	99.587
	Change:	-2,487	-2,099	68	-870	-1,282	172	-1,583
	% Open Interest:		56.9	8.6	26.4	10.5	12.8	77.1
	Analysis:	The A$ remains the most popular long currency with the specs.  The big specs, which will include the funds, are a very unbalanced 6.6 to 1 long, and the little spec is a 2.5 to one long.  The economic disaster caused by the flooding in Queensland has been largely ignored by the spec crowd.  After the end of the period there was some minor reduction in the OI.  Watch to see if bull news can again cause the A$ to surge above parity versus the USD.

*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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