COT Report Data 02 01 2011

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Data and Analysis for Most Recent Release

Legend:	Net Long	Net Short	Position Change

Overview:  The open interest (OI) went up in the DI, and all the other seven currencies reviewed.  The total increase was 64,814 contracts.  The biggest increases were in the euro, 25k contract, the pound 15k, and the A$, 8.5K.  This week there was a bigger increase in the OI of the developed countries.

All specs are now on the same page, short the USD.  Last week, they were only long, with a small position, in the DI.  The biggest position increases were in the A$, up 18,391 contracts, the euro, up 17,752, and the pound, up 16,163.  Speculators increased their longs in other currencies, by default selling the USD by 60,601 contracts.  So, of the 64,814 contract increase in the OI, this was almost exclusive selling the USD by the specs into commercial buying.  The total USD short position is up to over 275k contracts.  Th last time that the collective USD short was this big was the 10 19 2010 report.

The only position flips were in the DI.  There the big spec went short and the commercial went long.

Small specs have the biggest percentage of the long side of the market in the C$, the SF, 44.6 and the A$, 27.6%.  Small specs had the biggest short in the yen, 28.2%, the euro, 25%, and the SF 24.2%.

Large specs continue to dominate the trading in the DI, where they are long 61.1%, and short 69.2% of the total market. Likewise in the NZ$ they dominate this market with 73% ownership of the long side, and 35.6% os the short side.  The largest other big longs were in the A4 55.0% and the C$ 52.3%.  On the short side the large spec was most active short the SF, 22.7%, and pound 22.2%.

The big question with the currency markets is how much longer will the USD trend be lower?  Currency trend often continue for lengthy period of time, eventually going too far and then snapping back the other direction.  There is another issue.  What degree is the additional selling in the USD prompted by the market action?  Finally, is there news, or a black swan event that can change the mood of the market?  Trends do continue often longer than expected, but trends eventually turn with too many leaning the wrong way.



 

			(1) Large Traders		(2) Small Traders		(3) Commercial
		Total OI	Long	Short	Long	Short	Long	Short
USD Index	Contracts:	42,970	26,235	29,752	6,166	4,761	9,660	7,548
	Change:	3,219	1,928	6,913	251	135	1,085	-3,783
	% Open Interest:		61.1	69.2	14.3	11.1	22.5	17.5
	Analysis:	The large spec and the commercial both flipped their positions in the DI.  Large specs are now short the DI, while the commercial has emerged as a DI long.  Small traders are not big players in the DI, but they have retained their long position.
EUR	Contracts:	279,549	80,645	38,601	68,823	69,952	85,729	126,642
	Change:	25,432	7,513	-9,679	2,656	2,702	7,104	24,250
	% Open Interest:		28.8	13.8	24.6	25.0	30.7	40.3
	Analysis:	The OI continues to climb with the large specs increasing their longs and the small spec increasing both longs and shorts.  Spreading increased by 8,158 contracts, and is now up to 15.9% of the market.  The large spec now has a 2 to 1 long but the small spec is not following his lead.  Small specs remain long the USD.  It is interesting to see that small specs are big participants in the euro but they are almost evenly divided in their assessment of the markets direction.  The late week sell off in the euro versus the USD may have resulted in some long liquidation but this activity is too late for this report.
GBP	Contracts:	124,413	46,320	27,626	33,253	24,942	37,438	64,444
	Change:	15,655	9,934	-2,030	2,868	1,669	1,162	14,325
	% Open Interest:		37.2	22.2	26.7	20.0	30.1	51.8
	Analysis:	As a result of spec buying and commercial selling, the OI was up 12.5% in the latest period.  Large specs are long about 1.7 to 1 after aggressively buying the pound.  The total spec long went to 30k contracts up from about 14k in the prior report.
JPY	Contracts:	128,885	52,960	21,860	29,165	36,388	41,178	65,054
	Change:	1,326	-2,055	-1,197	2,049	3,823	782	-1,850
	% Open Interest:		41.1	17.0	22.6	28.2	31.9	50.5
	Analysis:	Recently trade in the yen has been subdued and the daily ranges have been small.  The large spec has been long the yen and did make minor reductions in his position, but he remains a 2.4 to 1 long.  both the commercials and the small specs have been short the yen.  Small specs added to their positions, and now have a 28.2% share of the market.
CHF	Contracts:	50,666	22,465	11,490	22,614	12,268	4,080	25,402
	Change:	6,688	4,496	666	2,182	390	-86	5,536
	% Open Interest:		44.3	22.7	44.6	24.2	8.0	50.1
	Analysis:	There was a 13.2% increase in the OI as the specs added to their long positions in the SF.  Large specs are about a 2 to 1 long.   Small specs are big participants in this market and are long 44.6% of the total market.  There may have been interest in the Swissy as a safe haven because of the unsettled conditions in Egypt.  After the cut off date for this week's data the SF lost ground to the USD, and the OI increased,
CAD	Contracts:	128,842	54,472	21,738	50,411	18,347	20,462	85,259
	Change:	2,717	514	-684	1,034	2,236	674	670
	% Open Interest:		52.3	16.9	39.1	14.2	15.9	66.2
	Analysis:	The loonie remains a big favorite for the spec.  The large specs are a 3 to 1 long, and the small specs are a 2.7 to 1 long.  Small specs did sell a bit more than they bought which made a minor reduction in the net long position.  As a commodity currency the C$ remains one of the specs favorites.
NZD	Contracts:	27,450	20,041	9,771	3,923	1,012	3,486	16,667
	Change:	1,251	1,534	-109	-25	-128	-258	1,488
	% Open Interest:		73.0	35.6	14.3	3.7	12.7	60.7
	Analysis:	Activity of the large spec buying from the commercial remains the dominate theme in this tiny market.  Large specs are a 2 to 1 long owning 73% of the total market.  Small specs are also long by a 3.8 to 1 margin but they are not big players in this market.
AUD	Contracts:	129,328	71,105	11,328	35,752	16,407	18,921	98,042
	Change:	8,526	11,914	-3,341	3,837	702	-8,178	10,213
	% Open Interest:		55.0	8.8	27.6	12.7	14.6	75.8
	Analysis:	Aggressive spec buying pushed the A$ higher.  Large specs are now a 6.2 to 1 long and have increased their long to 55% of the total market.  Small specs, also long but by only a 2.1 to 1 margin.  Specs favor the Aussie because of the commodity play, and because the A$ is a proxy for economic recovery in Asia.  Versus the USD, the A$ continued to grind higher after the closing date for this report.

*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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