COT Report 01 11 2011 Data

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Data and Analysis for Most Recent Release

Legend:	Net Long	Net Short	Position Change

Overview: There was an increase in the open interest (OI) during the week by 11,585 contracts.  Within that total are some mixed trends.  The euro had a significant increase 32,488 in the OI, and the DI had a 8,749 increase, quite large for the size of that contract.  There was also over a 7,000 increase in the C$ open interest.  The OI went down almost 24k contracts in the yen, and over 8k contracts in the A$.

The total USD short position was reduced during the week from 178,565 down to 113,624.  The only position flip during the period was in the DI, where the large spec aggressively moved to the long side.  In the euro the large specs were heavy sellers and and expanded their short in the euro to almost 50,000 contracts.  Spec shorts in the pound covered some of their positions.  There was significant position shifts in the yen as the yen longs sold over 20,000 contracts.  In the commodity currencies, the specs continued to buy more C$s but did cut back on their long A$.

The euro trade is interesting.  In one of our daily currency comments earlier in the week, we wondered who the buyers were in the euro, and how deep were their pockets as the OI was building sharply under the 1.30 handle.  By the end of the week, the market rallied smartly and these buyers had big profits. I am only an outside observer but I would guess that some of the euro buying was done by the Chinese or those who had knowledge of the size of the Chinese intervention to buy European bonds, which thereby supported the euro.

Small specs had the biggest long positions in the SF, 46.2%, the C$, at 35.4%, and the A$, 28.6%.  There largest short positions were in the pound, 28.3%, the yen 27.7% and the euro, 24.6%.

Large specs are the biggest participants in the two small markets, the DI, and the NZ$, and usually have very large positions on both sides of the market.  The large specs biggest positions remain in the commodity currencies.  They own 53.6% of the A$, and 51.5% of the C$.  On the short side of the market they are in the euro, 34.6% and the pound, 29.0%.

			(1) Large Traders		(2) Small Traders		(3) Commercial
		Total OI	Long	Short	Long	Short	Long	Short
USD Index	Contracts:	36,854	23,940	13,859	6,081	2,028	4,711	18,846
	Change:	8,749	5,342	-6,011	1,914	-597	272	14,137
	% Open Interest:		65.0	37.6	16.5	5.5	12.8	51.1
	Analysis:	This market is dominated by the large specs who last week, again flipped their position back to long the USD.  During the period they aggressively covered shorts and increased their longs.  Small specs are also long by a 3 to 1 margin.  It is unusual to see a market group flip back and forth two periods in a row.  Versus the euro and the pound, this changed position was not a winner.
EUR	Contracts:	245,906	42,202	85,024	53,333	60,381	117,932	68,062
	Change:	32,488	7,343	27,095	2,188	6,631	28,696	4,501
	% Open Interest:		17.2	34.6	21.7	24.6	48.0	27.7
	Analysis:	This was a very big weekly increase in the euro OI.  It is even bigger when spreading was reduced, down 5,738 contracts to 13.2% of the total.  The big up in the OI was mostly the work of the big spec, although the small specs added to their short position also.  What is interesting about the report is the market action after the end of the period.  The big increase in the OI was done when the market was going down.  After the hook bottom and turnaround on Tuesday, the market rallied sharply, closing at 1.3382, and giving the new shorts a loss.  Total spec short positions was up over 24,000 contracts to almost 50k total.  The Thursday market activity on the big up day resulted in liquidation of 11,112 contracts (futures only).  Unless there was additional short covering on Friday, with a big decline in the OI, we can probably anticipate more of a short squeeze  soon.
GBP	Contracts:	94,138	21,147	27,312	20,049	26,602	49,504	36,786
	Change:	699	3,495	-2,987	1,743	586	-2,666	4,972
	% Open Interest:		22.5	29.0	21.3	28.3	52.6	39.1
	Analysis:	Unlike the euro, there was little change in the pound.  The large spec did cover some of his net short, by increasing his long and reducing his short, and the small spec added to his long position, but remains short.  Despite the very strong pound there does not appear to be an increase in pound trading or the totsl OI after the end of the period..
JPY	Contracts:	117,560	44,384	19,992	25,104	32,521	43,685	60,659
	Change:	-23,925	-21,673	-7,253	-3,314	2,869	3,018	-17,585
	% Open Interest:		37.8	17.0	21.4	27.7	37.2	51.6
	Analysis:	The large specs, who had been the big long in this market were a heavy seller as the total OI declined, however, and they still remain long.  Small specs remained short the yen and increased their positions.  This is an interesting set up,  the small specs and the commercial are short the yen, while the the big specs are on the other side. There was no significant market movement after the end of the period.
CHF	Contracts:	44,817	20,659	9,437	20,689	10,036	2,897	24,773
	Change:	-5,917	-3,909	-1,469	-715	1,016	-457	-4,629
	% Open Interest:		46.1	21.1	46.2	22.4	6.5	55.3
	Analysis:	There was liquidation, 13% of the total market, as the large spec reduced some of their long position.  Even after the selling large and small specs still remained better than a 2 to 1 long in the SF.  Perhaps the turn around in the euro caused some franc liquidation as fear of the euro's future abated.
CAD	Contracts:	136,381	70,292	23,433	48,283	19,251	15,508	91,399
	Change:	7,202	5,051	-3,790	3,456	1,690	-411	10,167
	% Open Interest:		51.5	17.2	35.4	14.1	11.4	67.0
	Analysis:	The OI increased modestly as the large specs continued to expand their position.  They are now long 51.5% of the OI and a almost a 3 to 1 long.  The total spec long in the C$, with the small spec also an unbalanced 3.5 to 1 long, grew to 75,891 contracts, up over 10,000 contracts for the week.  Market action for the week, continued to favor the spec longs.
NZD	Contracts:	27,358	20,943	11,323	3,669	879	2,746	15,156
	Change:	915	-219	892	598	-131	536	154
	% Open Interest:		76.6	41.4	13.4	3.2	10.0	55.4
	Analysis:	This small market is dominated by large specs and the commercials.  Large specs reduced their total net long exposure by increasing their shorts and liquidating a few of their longs.  Small specs went the other way, and are now a 4.2 to 1 long.
AUD	Contracts:	120,611	64,660	12,393	34,526	13,365	19,132	92,561
	Change:	-8,626	-8,867	1,231	345	-198	2,529	-7,023
	% Open Interest:		53.6	10.3	28.6	11.1	15.9	76.7
	Analysis:	The large spec remains better than a 5 to 1 long even after reducing his net long by over 9,000 contracts.  Small specs are also an unbalanced long and made modest addition to their position.  The weekly market action was not helpful to the spec longs, and may have caused the small selling.

*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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