COT Report Data through 01 18 2011

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Data and Analysis for Most Recent Release

Legend:	Net Long	Net Short	Position Change

Overview: The collective open interest (OI) show only little change for the week, and did not show the big internal market shifts.  Total OI was 3,035 contracts lower.  The euro was reduced by 11,809, and the very small DI had a reduction of 3,505.  Offsetting this was an increase in the pound, 8,052, and the yen 3,694.

The feature of the week was the specs flipping their positions in the pound and the euro.  Short positions held by the spec in the euro and the pound in the previous week had been about 62k contracts.  After their massive buying of the euro and the pound this position flipped in the euro and the pound by a little over than 10k contracts.  This massive shift resulted in a very big increase in the short USD position.  When specs are long a currency at the CME, this means they, by default, are short the USD.  The total USD in the contracts we cover was 196, 079 contracts, up from 113,624 in the previous week.  The USD short is now this biggest it has been since the report of 11 16 2010.  The only contract were the spec remains long is in the DI.

In the pound, all three groups flipped their positions, and the big spec euro flip involved the purchase of a lot of euros.  The market had a collective epiphany and they sold the USD and bought the euro and the pound.

Small specs had the largest percentage share of the market in the SF, 47.2%, the C$, 36.2%, and the A$, 28.2%.  There largest shor positions were in the yen, 27.9%, and the euro 25.9%.  Since they remain short and the euro acts well, there may be short covering in the euro.  Ignoring the large spec dominance in the DI, and the NZ$, specs have the largest long positions in the A$, 52.4%, the C$ 49.2%, and the SF 44.8%.  On the short side the big specs have their largest positions in the pound, 28.4%, and the SF, 28.1%. 

			(1) Large Traders		(2) Small Traders		(3) Commercial
		Total OI	Long	Short	Long	Short	Long	Short
USD Index	Contracts:	33,352	20,227	14,998	5,356	3,686	6,964	13,865
	Change:	-3,502	-3,714	1,139	-725	1,656	2,252	-4,981
	% Open Interest:		60.6	45.0	16.1	11.0	20.9	41.6
	Analysis:	There was some spec liquidation in the DI both by the large and the small specs.  The OI was down about 10% in this market dominated by the large specs.  Both the large and small specs remain about 1.5 to 1 long.
EUR	Contracts:	234,097	85,537	60,082	58,632	60,728	77,032	80,392
	Change:	-11,809	23,335	-24,943	5,299	347	-40,900	12,329
	% Open Interest:		28.0	25.7	25.0	25.9	32.9	34.3
	Analysis:	There was only a minor reduction in the OI, but there were some major shifts in euro positions.  Both the large specs and the commercial flipped their positions.  The large spec was decisive in his actions, buying over 23k contracts of the euro, and reducing shorts by almost 15k.  Small specs increased their euro long but still remained short the euro.  The market action late in the week, after the end of this report favored the longs and probably resulted in more short covering.  Spreading is a large 14.1% of the total OI.
GBP	Contracts:	102,190	31,656	28,983	27,342	22,790	38,628	45,673
	Change:	8,052	10,508	1,671	7,293	-3,632	-10,875	8,887
	% Open Interest:		31.0	28.4	26.8	22.5	37.8	44.7
	Analysis:	This was an unusual week when all three major groups flipped their positions.  The shift to the long side of the pound by the specs was decisive by almost 20k contracts.  Large specs were net buyers of about 9k contracts while the small spec bought almost 11k.  Small specs are large participants in the pound.  Spreading  was up to 4.5% of the total OI.  Late in the week there seemed to be some churning around the 1.60 handle.
JPY	Contracts:	121,254	46,852	26,723	27,110	33,851	42,824	56,212
	Change:	3,694	2,467	6,731	2,007	1,330	-861	-4,448
	% Open Interest:		38.6	22.0	22.4	27.9	35.3	46.4
	Analysis:	The large spec continues to be long the yen while the small spec is on the short side.  Large specs did make fairly sizable shorts sales during the period.  Neither large or small specs have out of balanced positions.
CHF	Contracts:	44,418	19,910	12,497	20,948	9,996	2,947	21,311
	Change:	-399	-749	3,060	259	-40	50	-3,462
	% Open Interest:		44.8	28.1	47.2	22.5	6.6	48.0
	Analysis:	The SF has been a very popular choice to the single currency euro for some time.  Despite the resurgence  in the esteem of the euro, the OI has declined little as the specs keep their long positions.  The small spec is better than a 2 to 1 long and the big spec has 44.8% of the total market long.
CAD	Contracts:	136,203	67,013	23,749	49,277	17,839	17,147	91,848
	Change:	-178	-3,280	316	994	-1,412	1,638	449
	% Open Interest:		49.2	17.4	36.2	13.1	12.6	67.4
	Analysis:	There was little change in the C$ as the loonie retained it's status as one of the most favored commodity currencies.  Both the large and small specs are an unbalanced long, approaching a 3 to 1 bias.  After the cut off date for this report the OI in futures did come down by 5k contracts.  The elevated level above parity with the USD may be causing some headwinds to their economy.
NZD	Contracts:	27,636	21,224	9,977	3,651	995	2,761	16,664
	Change:	278	281	-1,346	-18	116	15	1,508
	% Open Interest:		76.8	36.1	13.2	3.6	10.0	60.3
	Analysis:	This small market currency remains a favorite of the big specs, probably funds.  There are 17 large specs long 76.8% of the total market, and 13 short 36.1% of the total.  Small specs share the interest in the long side of the kiwi by a 3 to 1 margin but only hold small positions.
AUD	Contracts:	121,444	63,656	11,142	34,231	14,706	20,880	92,919
	Change:	832	-1,005	-1,250	-295	1,342	1,748	358
	% Open Interest:		52.4	9.2	28.2	12.1	17.2	76.5
	Analysis:	The A$ remains a favorite of the large specs by a 5.7 to 1 ratio, and there was only minor shifts in positions during the period.  Small specs are likewise long, better than a 2 to 1 ratio.  Speculators are wrestling with the impact of the extensive Queensland floods on exports and the GNP, and the possibility of a slowing Chinese economy.  So far they seem to be staying the course, holding their big longs.

*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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