COT Report Data 02 08 2011

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Data and Analysis for Most Recent Release

Legend:	Net Long	Net Short	Position Change

Overview: There was a small decline in the open interest (OI) during the latest period which ended 02,08,2011.  This decline of 5,606 contracts was primarily result of 33,229 contracts in the euro, of which a good portion was option expiration.  There were increases of about 20k in the C$, and 12K in the A$.

During the 21 months we have prepared this report as an analytical tool, we have kept the aggregate spec positions in the USD including the delta adjusted option positions.  For example, a long C$ position is also a short USD position.  For the second week in a row, the specs are all lined up long something else and short the USD.  During the period specs added 44,249 contracts.  The total spec USD short is now 319,577 contracts, the largest during the 21 months of these reports.  The biggest spec longs remain in the A$, and the C$, but they have aggressively bought the euro, and were adding to their pound positions after the end of this report.

With the market this long, there will need to be an additional flow of new money shorting the USD.  Failure to attract new buying to replace the older longs that chose to exit positions, will result in a market that falls of it's own weight.  

The only position flip was buy the small specs in the euro.  There they liquidated 15k shorts, and while holding the bulk of their longs.  This left them a net long.

Small specs had the biggest percentage share of the the SF, 48.2%, and the C$, 35.7%  On the short side, they had the biggest share of the yen, 28.5%, and the SF, 21.6%.  Small specs largest net longs (longs minus shorts) were in the SF, 26.6% and the C$, 24.9%.  Only in the DI, and the yen were the small specs long the USD.

Aside from the DI, and the NZ$ where specs have the largest share of both sides of the market, the biggest large spec longs were in the A$, 60.3%, the C$, 48.9%, and the SF, 45.8% of the market.  On the short side, the biggest percentage share by the large specs were in the SF, 28.4%, and the C$ 22.2%.

			(1) Large Traders		(2) Small Traders		(3) Commercial
		Total OI	Long	Short	Long	Short	Long	Short
USD Index	Contracts:	44,385	27,141	34,428	5,687	4,331	10,654	4,724
	Change:	1,415	906	4,676	-478	-430	995	-2,824
	% Open Interest:		61.7	77.6	12.8	9.8	24.0	10.6
	Analysis:	This small market is dominated by the large specs on both sides of the market.  The large spec increased his USD short during the period by almost 5.7k contracts and the commercial reduced his short.  Small specs have joined the commercial on the long side of the DI.
EUR	Contracts:	246,319	72,653	33,653	64,513	54,795	75,396	124,105
	Change:	-33,229	-7,992	-4,941	-4,310	-15,157	-10,033	-2,537
	% Open Interest:		29.5	13.7	26.2	22.2	30.6	50.4
	Analysis:	Options expiration resulted in a large reduction of the OI but that did not stop the specs from adding more to their long euro position.  The small specs flipped from short to long the euro, but they did it by reducing their short positions leaving them net long.  This is not as definitive statement of bullishness as when the open interest on the long side moves sharply higher.   Spreading was down 10,594 contracts and has been reduced to 13.7% of the OI.  The large spec is better than a 2 to 1 long.  Late week market action favored the shorts.
GBP	Contracts:	120,545	48,956	25,235	32,344	22,462	34,095	67,697
	Change:	-3,869	2,636	-2,390	-909	-2,480	-3,344	3,253
	% Open Interest:		40.6	20.8	26.8	18.6	28.3	56.2
	Analysis:	Large specs continued to add to their net long position in the pound buying more longs and decreasing their shorts.  They are now a 2 to 1 long.  The commercial is on the other side of the trade.  Small specs are also long the pound, but with a smaller ratio.  Spreading was down 2,251 contracts to 4.3% of the OI.
JPY	Contracts:	127,241	56,975	20,587	28,024	36,251	37,842	66,004
	Change:	-1,644	4,015	-1,273	-1,131	-138	-3,335	950
	% Open Interest:		44.8	16.2	22.0	28.5	29.7	51.9
	Analysis:	There was not much movement in the yen positions.  Large specs, already long, added to their positions, and are now a 2.7 to 1 long.  Small specs disagree with the large specs and are on the short side of this market.  The late week market action favored those short the yen.
CHF	Contracts:	50,004	22,913	14,216	24,091	10,795	2,455	24,448
	Change:	-662	448	2,726	1,477	-1,472	-1,625	-955
	% Open Interest:		45.8	28.4	48.2	21.6	4.9	48.9
	Analysis:	Both spec groups are committed to the long side of the franc, with the large specs a 1.6 to 1 long and the small specs a 2.23 to 1 long.  Small specs increased their long while the large specs were reducing theirs in this reporting period.  Franc longs were money losers last week.
CAD	Contracts:	148,716	72,679	33,008	53,162	16,110	20,005	96,729
	Change:	19,874	18,207	11,269	2,751	-2,238	-457	11,740
	% Open Interest:		48.9	22.2	35.7	10.8	13.5	65.0
	Analysis:	The OI in the C$ went up during the week, primarily because the large spec added to both their longs and their shorts.  The large spec is now a 2.2 to 1 long and the small spec is a 3.3 to 1 long.  The surge in the OI has made this the 2nd largest futures contract behind the euro.  There was very strong market action in the C$,  late Friday, after the end of the period.
NZD	Contracts:	27,897	20,804	9,947	3,625	-56	3,468	16,994
	Change:	447	763	176	-298	-56	-18	327
	% Open Interest:		74.6	35.7	13.0	3.4	12.4	60.9
	Analysis:	This remains a favorite of the large spec, long almost 75% of the total market, however, short 35%.  Small spec likewise are unbalanced longs but they have a small percentage of the OI.  There were only minor weekly position changes.
AUD	Contracts:	141,929	85,641	13,509	35,163	16,265	17,991	109,022
	Change:	12,602	14,536	2,180	-588	-143	-930	10,980
	% Open Interest:		60.3	9.5	24.8	11.5	12.7	76.8
	Analysis:	There was a 12k increase in the OI as the large specs added to their position.  They are now an unbalanced 6.3 to 1 long, owning over 60% of this large market.  Small specs are a 2 to 1 long, and together with the big specs they hold a 91k contract long position.  After the close of this reporting period there was a reduction in the OI and late week there was market weakness in the A$.

*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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