COT Report Dated Jan. 5, 2010

To Subscribe to alerts when a new COT report is published (weekly) click here and choose "subscribe" on the weekly COT alerts field, and click to update your existing account or register a new one.

Data and Analysis for Most Recent Release

Legend:	Net Long	Net Short	Position Change

Overview: During the period the open interest climbed in all currencies reviewed with the exception of the Dollar Index and the Swiss Franc.  The pattern remains the same, with the speculators on the buy side of the "commodity currencies," which leaves them short the USD by default, by a total of 146,121 contracts.  In the other contracts, the DI, Euro, Pound, Yen, and the SF, the speculators are now by default long the USD and short the other currencies by 139,799 contracts.  (These numbers are from the COT long form which allows for the delta adjusted commodity options positions, which in my opinion is a more accurate picture than the short form used by many analyst.)  The total spec positions, large and short participants, are the biggest shorts in the pound, and the biggest longs in the Canadian and Australian Dollar.  Largest small spec positions, as a percentage of the total OI of that market, is in the Canadian Dollar, 38.4% followed by the franc, 31.1%.  The biggest short positions by the small specs is in the SF, 28.6% and the BP at 28.3%.  Small spec positions need to be monitered carefully because they are often the quickest to liquidate when confronted with adverse market conditions.

			(1) Large Traders		(2) Small Traders		(3) Commercial
		Total OI	Long	Short	Long	Short	Long	Short
USD Index	Contracts:	63,511	48,642	9,224	5,356	2,895	6,629	48,509
	Change:	-1,202	-2,437	-2,767	664	282	555	1,268
	% Open Interest:		76.6	14.5	8.4	4.6	10.4	76.4
	Analysis:	There were only modest changes in the OI during the period.  Large specs, who are a 5 to 1 long reduced both longs and shorts.  The small spec, not a big player in this market, did increase his long position.  This leaves the commercial a 7 to 1 short in the DI futures market.
EUR	Contracts:	196,272	37,341	69,865	48,114	40,559	80,486	55,516
	Change:	12,510	2,962	4,931	-501	1,987	9,009	4,553
	% Open Interest:		19.0	35.6	24.5	20.7	41.0	28.3
	Analysis:	The large speculators are already short the euro and added modestly to this position during the period.  Small specs remain long the euro but added some shorts and reduced longs during the period, and they remain big participants in this market.
GBP	Contracts:	101,524	17,068	51,570	18,026	28,746	61,531	16,309
	Change:	8,419	-706	3,730	-2,533	4,046	11,529	514
	% Open Interest:		16.8	50.8	17.8	28.3	60.6	16.1
	Analysis:	The OI climbed about 8% during the period as specs sold the pound and the commercial bought.  The large spec is now short over 50% of the OI and is a 3 to 1 short.  Small specs are not getting with the plan as they decreased longs and increased shorts during the period.  The small specs are now short a large 28% of the total open.
JPY	Contracts:	120,331	20,207	35,332	17,211	28,218	70,993	44,861
	Change:	9,921	668	2,862	-1,554	2,125	9,725	3,851
	% Open Interest:		16.8	29.4	14.3	23.5	59.0	37.3
	Analysis:	The large spec continued to increase his long position in the yen although he did also buy a few contracts.  Small specs reduced longs and increased his shorts.  The biggest weekly activity came from the commercials who bought almost 10,000 contracts, and increased shorts by a little less than 4,000.
CHF	Contracts:	37,994	12,525	15,090	11,883	10,862	11,819	10,224
	Change:	-2,743	2,143	-2,116	1,422	-1,961	-6,423	1,219
	% Open Interest:		33.0	39.7	31.1	28.6	31.1	26.9
	Analysis:	Small specs continue to be big players in this market.  Their percentage of the long OI is 31.1, the same as percentage as the commercials, and the small specs short position exceed that of the commercials.  Small specs flipped their position from short to long during the period.  Large specs differ from the little specs as they are short this market.  Commercials sharply reduced long positions during the period.
CAD	Contracts:	119,384	51,968	11,150	45,864	18,855	17,211	85,038
	Change:	7,630	1,312	1,152	4,607	1,304	1,337	4,800
	% Open Interest:		43.5	9.3	38.4	15.8	14.4	71.2
	Analysis:	Small specs continue to increase their bets on a strong Cad, and are now long 38.4% of the total OI in the market.  Large spec, probably funds, remain a 4.6 to 1 long in the Cad.  Looks like there is no change in the game plan for the loonie.
NZD	Contracts:	23,053	18,106	5,133	3,490	1,430	1,457	16,490
	Change:	4,160	4,234	66	497	208	-571	3,886
	% Open Interest:		78.5	22.3	15.1	6.2	6.3	71.5
	Analysis:	The OI increased 18% in this small market during the last period.  Large spec, probably funds, again took a liking to the Kiwi, and were aggressive buyers.  They are now long over 78% of the OI.  Small specs are also long the Kiwi but they are small participants in this market.
AUD	Contracts:	114,953	62,682	14,817	27,269	11,873	22,014	85,275
	Change:	10,936	9,269	-1,692	1,476	274	568	12,731
	% Open Interest:		54.5	12.9	23.7	10.3	19.2	74.2
	Analysis:	The OI climbed 9.5% during the period with the large specs the aggressive buyers.  Small spec joined in the buying.  Large specs are now over a 4 to 1 long and the little spec is a 2+ to 1 long.

*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.

Click here for previous COT Analysis Postings  |  Click here for CFTC page about the COT Report