COT Report Data 02 15 2011

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Data and Analysis for Most Recent Release

Legend:	Net Long	Net Short	Position Change

Overview:  There was a small decrease in the open interest (OI) during the week, down 3,344 contracts.  Most of the liquidation took place in the A$, down 12,621 contracts, the euro down 5,687 contracts, and the SF down 5,503, as well as smaller reductions in the C$, DI, and the NZ$.  The aggregate number was off set by the large spec purchases in the pound, up 22k as well a small increase in the yen.

There was a big trade in the yen and the C$ with large specs and commercials swapping positions.In the yen, the large specs flipped from long to a short, and the commercial went the other way.  Specs are now short the yen, and by default long the USD.  This is the only spec net long USD, and is versus a short yen position.  This leaves the spec long all other currencies and short the USD.  The total short spec USD position is 336,008 contracts, but we must deduct the yen position which leaves the net short 302,067 contracts.  This is down from last week's recent record of 319,577.

			(1) Large Traders		(2) Small Traders		(3) Commercial
		Total OI	Long	Short	Long	Short	Long	Short
USD Index	Contracts:	40,409	24,384	30,113	5,684	3,525	8,651	5,082
	Change:	-3,976	-2,757	-4,315	-3	-806	-2003	358
	% Open Interest:		60.3	74.5	14.1	8.7	21.4	12.6
	Analysis:	Large spec, the biggest participants in this small market, decreased both longs and shorts during the period,but they remain a modest USD short.  Small specs are long the USD, differing in opinion from the large traders.
EUR	Contracts:	240,633	62,036	24,639	62,371	54,497	78,825	124,096
	Change:	-5,687	-10,617	-9,023	-2,142	-198	3,429	-9
	% Open Interest:		25.8	10.2	25.9	22.6	32.8	51.6
	Analysis:	Both the large and small specs were on the liquidation  side of both longs and shorts.  Large specs do remain about a 2.5 to 1 long.  Small specs have a large share of this big market, and remain modest longs.  There was not a lot of feature in the euro during the period with the market working a little higher.  Spreading was up 3,643 contracts to 15.5% of the total OI.
GBP	Contracts:	142,990	68,595	17,403	35,973	22,591	33,116	97,690
	Change:	22,445	19,640	-7,833	3,629	129	-978	29,993
	% Open Interest:		48.0	12.2	25.2	15.8	23.2	68.3
	Analysis:	The pound had a strong week with aggressive accumulation of longs by both spec groups.  Large specs are now a little over a 3.9 to 1 ratio.  They increased their longs and decreased shorts.  Commercials were obviously the big sellers with the activity causing a surge in the OI.  The increase in the spec longs is fueled by conjecture that the Bank of England will be forced to increase the bank rate to fight inflation.
JPY	Contracts:	130,097	25,003	43,925	23,413	38,432	74,880	40,939
	Change:	2,856	-31,972	23,338	-4,611	2,182	37,038	-25,065
	% Open Interest:		19.2	33.8	18.0	29.5	57.6	31.5
	Analysis:	The activity in the yen for the weeks is very perplexing.  Although there was little change in the OI,  The large specs, who had been long the yen reduced longs by 32k, and increased shorts by 23k.  Commercials took the other side of this trade and flipped to the long side of the yen.  It is unlikely all this activity was isolated from some type of commercial pricing or repatriation of money from over seas.  Perhaps it is possible that exporters or importers had taken large spec positions, anticipating the day when their trade partners would fix the exchange rate of the foreign trades.  Though classified as large specs, they were really large commercials with anticipatory pricing.  This trade is probably not as meaningful for example as the surge in pound spec buying.
CHF	Contracts:	44,500	17,731	6,702	18,514	11,902	7,664	25,305
	Change:	-5,503	-5,182	-7,514	-5,577	1,106	5,209	857
	% Open Interest:		39.8	15.1	41.6	26.7	17.2	56.9
	Analysis:	Both spec groups were busy during the period reducing their longs.  The large spec also shed some of has shorts and remains a 2.6 to 1 long.  Specs cling to the long side of the franc because of its perceived safe haven status.  The franc strengthened after the end of the period.
CAD	Contracts:	148,020	76,560	4,840	48,786	18,772	20,167	121,901
	Change:	-696	3,881	-28,168	-4,376	2,662	162	25,172
	% Open Interest:		51.7	3.3	33.0	12.7	13.6	82.4
	Analysis:	Though there was little change in the total OI, there were some big position shifts.  Much of the large spec short appears to have been transferred, or traded over to the commercial.  This leaves the large spec an very  unbalanced 15 to 1 long in the C$.  We have long suspected the large spec C$ positions are refuses for manufactures and banks, and the position flops back and forth between spec and commercial.  Perhaps this is what happened.  The small spec reduced some of his net long.
NZD	Contracts:	27,735	18,018	8,208	3,147	1,138	6,570	18,389
	Change:	-162	-2,786	-1,739	-478	182	3,102	1,395
	% Open Interest:		65.0	29.6	11.3	4.1	23.7	66.3
	Analysis:	This small market remains a favorite of the large spec crowd, most;y on the long side.  They are now a 2.2 to 1 long.  The small spec is also long by a 2.7 to 1 long.  Both spec groups reduced their longs in the period.
AUD	Contracts:	129,308	70,746	5,859	35,415	15,802	19,876	104,376
	Change:	-12,621	-14,895	-7,650	252	-462	1,885	-4,645
	% Open Interest:		54.7	4.5	27.4	12.2	15.4	80.7
	Analysis:	The OI was down over 12k as the big spec got out.  He still remains a very unbalanced long by a huge 12 to 1 ratio.  Small specs are long by over a 2 to 1 margin and added to the position.  Combined the specs are long over 84k contracts, but a small reduction from last week.

*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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