COT Report Data 01 25 2011

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Data and Analysis for Most Recent Release

Legend:	Net Long	Net Short	Position Change

Overview: During the most recent period the open interest (OI) increased by 26,694 contracts.  The aggregate increase is misleading, as there was a bifurcation of trends.  The currencies of the industrialized countries, euro, pound, yen, and the DI increased, while the OI in the commodity currencies decreased.  The biggest increase was in the euro, over 20k contracts, while there was a reduction in the C$ OI by 10k.

Speculators are now almost unanimous in their positions against the USD.  Only in the DI are the specs long the USD, and there only 2,757 contracts.  There were big increases in long euro, yen and short the USD positions.  Offsetting this was reductions in the long C$ and A$ positions.  The net result, though is an increase in the short USD positions to 214,727 contracts, up from 196,079 contracts in the previous period.  This is the largest spec dollar short position since the week of 11 09 2010.

There were not position flips during the week.  The small spec remains short a minor amount of euro contracts, and is very close to a switch to the long side.  It will be interesting to see if the commodity currency longs sell off more of their longs this coming week.

Small specs have the biggest long positions in the SF, 46.5%, the C$, 42.8%, and the pound 27.9%.  Their largest short positions are in the SF, 27%, the euro 26.5%, and the yen, 25%.

The DI and the NZ$ are small markets dominated by the large specs so their large positions have a tendency to off set.  Aside from these two contracts, the large specs biggest market share is in the A$, 49.0%, the yen 43.1%, and the SF 40.9%.  The biggest short positions are in the pound, 27.3% and the SF, 24.6%.

			(1) Large Traders		(2) Small Traders		(3) Commercial
		Total OI	Long	Short	Long	Short	Long	Short
USD Index	Contracts:	39,371	24,307	22,839	5,915	4,626	8,574	11,331
	Change:	6,398	4,081	7,841	559	943	1,610	-2,534
	% Open Interest:		61.1	57.5	14.9	11.6	21.6	28.5
	Analysis:	The OI climbed 16.2% in the week.  This is a large specs market and they added to both longs and shorts.  Both the large and small specs remain long the USD but both reduced their positions during the period.  They reduced their USD long from 6,721 in the previous week to 2,757 in the most recent period.
EUR	Contracts:	254,117	73,132	48,282	66,167	67,250	78,625	102,392
	Change:	20,020	7,595	-11,800	7,535	6,523	1,593	22,000
	% Open Interest:		28.8	19.0	26.0	26.5	30.9	40.3
	Analysis:	The large specs continued their buying of the euro but at a slightly slower pace.  In the previous week they increase their move to the long side by about 48,000 contracts.  This was followed by net purchases this past week of a little over 19k.  So far small specs have failed to join the euro bulls party, and they remain a very minor net short in the euro.  Spreading now represents 14.2% of the total OI, and increased 3,297 contracts.  This is option related activity.
GBP	Contracts:	109,759	36,386	29,656	30,385	23,273	36,276	50,119
	Change:	6,569	4,731	673	3,044	304	-2,352	4,446
	% Open Interest:		33.5	27.3	27.9	21.4	33.4	46.1
	Analysis:	After flipping positions last week, the specs continued to add to their long pound position in the period.  The OI was up about 6% as both spec groups added to their longs.  Neither the large or small specs yet have an unbalanced long.  Spreading went up 1,146 contracts and is now 5.3% of the total OI.
JPY	Contracts:	127,559	55,015	23,057	27,116	32,566	40,396	66,904
	Change:	6,305	8,163	-3,366	6	-1,285	-2,428	10,692
	% Open Interest:		43.1	18.1	21.3	25.5	31.7	52.4
	Analysis:	The large spec added to their long yen, on a modest increase in the OI.  Large specs are now amost a 2.4 to 1 long in the yen.  The small spec remains a short in the yen, though they did make a small reduction in their position.  The total net yen spec long position, by default a short the dollar position increased by over 13k contracts during the period.
CHF	Contracts:	43,978	17,970	10,823	20,432	11,878	4,166	19,866
	Change:	-440	-1,941	-1,674	-516	1,882	1,219	-1,445
	% Open Interest:		40.9	24.6	46.5	27.0	9.5	45.2
	Analysis:	As the euro found some friends, the spec lost interest in the SF, and there was a small reduction in the OI.  Both spec groups, though, still remain on the long side of the franc, and combined have about a 90% share of the long SF.
CAD	Contracts:	126,125	53,958	22,423	49,377	16,111	19,787	84,588
	Change:	-10,078	-13,055	-1,326	100	-1,727	2,642	-7,260
	% Open Interest:		42.8	17.8	30.1	12.8	15.7	67.1
	Analysis:	After achieving and surpassing parity with the USD, the loonie has stalled and some of the tired longs may be bailing.  The total OI was down by a little over 10k contracts as the large specs sold out.  Despite these sells the large spec remains a 2.5 to 1 long.  Small specs are likewise long by a 2.4 to 1 margin.
NZD	Contracts:	26,199	18,507	0,880	3,948	1,140	3,744	15,179
	Change:	-1,437	-2,717	-97	297	145	983	-1,485
	% Open Interest:		70.6	37.7	15.1	4.4	14.3	57.9
	Analysis:	Does the small reduction in the OI of the C$, the NZ$ and the A$ mean that the commodity currencies are losing some of their appeal?  The large specs reduced their size of the long side of the kiwi, and they now remain a little less than a 2 to 1 long.  Small specs remain a 3.7 to 1 long, and did not liquidate positions in the period.
AUD	Contracts:	120,801	59,191	14,669	31,914	15,706	27,099	87,829
	Change:	-643	-4,465	3,527	-2,317	999	6,218	-5,090
	% Open Interest:		49.0	12.1	26.4	13.0	22.4	72.7
	Analysis:	There was little reduction in the OI but there was some rearrangement of the open positions.  The large spec reduced his long and increased his short, while the commercial did just the opposite.  The large spec remains a 4 to 1 long and small specs a 2 to 1 long.  Had the commercial not been their to fade the spec liquidation, there would have probably been more weakness in the Aussie during the period.

*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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