Speculative positioning in EURUSD normalized after a significant dollar rebound marked the end of a dramatic run on 1.60. Since last Friday – when the Speculative Sentiment Index Ratio hit a near 10-month low -3.17 – the pair’s bullish advance was steadily tempered with the extreme sentiment reading capitulating. However, even with the pair coming back from what would ended up being a major double touch, retail traders are showing little confidence in the range after many suffered a run on stops and took quick profits on remaining positions when they edged back into the green.
- EURUSD – Euro SSI Extreme Eases After The Currency Fails To Take 1.60
- GBPUSD – More Retail Traders Are Trying To Short The Pound
- USDJPY – A USDJPY Breakdown Encourages Speculators To Fight The Trend
- USDCHF – USDCHF Longs Rise Despite The Failure Of A Triple Bottom
- USDCAD – Positioning In USDCAD The Most Bullish Since May Reversal
While the SSI is available once a week on DailyFX.com, you can receive SSI readings twice a day in DailyFX-Plus!
The SSI sought a EURUSD rally since 1.26 and was signaling a reversal around 1.60. Find our more in the DailyFX Forum.
Historical Charts of Speculative Positioning
EURUSD – Speculative positioning in EURUSD normalized after a significant dollar rebound marked the end of a dramatic run on 1.60. Since last Friday – when the Speculative Sentiment Index Ratio hit a near 10-month low -3.17 – the pair’s bullish advance was steadily tempered with the extreme sentiment reading capitulating. However, even with the pair coming back from what would ended up being a major double touch, retail traders are showing little confidence in the range after many suffered a run on stops and took quick profits on remaining positions when they edged back into the green. Today, the euro’s SSI reading stands at -1.39 with 58% of the group short. This reading happens to sustain a steadily diminishing, weekly trend following the -1.71 figure from last Thursday and the -2.48 print from two week’s ago. The indicator’s details confirm the ratio’s move back to parity. Long positions were a modest 0.5% weaker than yesterday, but a significant 26.6% stronger than last week. Showing the lack of interest in the pull back, shorts were only 0.6% above Wednesday’s levels and 6.6% weaker than last Thursday. Overall, the dramatic price action hasn’t drawn many volatility seekers as open interest has grown only 4.3% over the week and now stands 3.1% above the monthly average.
GBPUSD – Retail pound traders continue to fight the trend even though GBPUSD has broken a major trend and congestion pattern. This past week, the pound rallied through a prominent falling trendline that had held back advances since late November and then went on to rally beyond the 2.00 psychological hurdle. And, even though the pair has pulled back from its intraweek highs, the speculative positioning is still heavily skewed to the downside – pointing to further upside potential. The GBPUSD SSI stands at -2.30 with a considerable 70% of retailers short. This compares to the -1.75 reading from last week and -2.05 seen two Thursday’s go. In detail, longs have slipped 0.6% from yesterday but tumbled 20.1% since last week. Showing the group’s high confidence in a pull back from 2.00, shorts have risen 0.5% over the past 24 hours and 39% through the week. Just as with the euro, net positioning has changed little from last week, with open interest up only 3.3% on the week – though it is 8.5% above its monthly average.
USDJPY – A notable break in a medium-term USDJPY trend has led to a flip in speculative positioning as the often counter-trend retail community looks to fight the developing trend. With a break in the rising trend from April, the Speculative Sentiment Index jumped to 1.38 from the near-parity reading of 1.01 last week. In fact, the net positive figures from last week are the most extreme since March when the pair marked its major reversal from 12-year lows. The details of the report reflect a retail group that is betting on a return to the bullish trend. From the report’s details, long trades slipped 0.6% in the last 24 hours but surged 43.4% from last week. At the same time, shorts are up 0.7% on the day and only 6.2% lower on the week. The heavy activity on only one side of the market has shown through in open interest. Net positioning grew 18.4% over the week and is 18.1% above the monthly average. As a contrarian indicator, the SSI is suggesting the recent downside break is developing into a potential trend change.
USDCHF – While most of the majors have fallen into ranges, none of the pairs have been contained by congestive price action quiet as long as the USDCAD. Working on its eighth month of restrained rallies and rebuffed selloffs, retail positioning behind the pair is still relatively muted as the speculative community struggles to call turning points in an otherwise choppy range. Recently, there has been a notable trend behind a growing, positive bias in sentiment since the flip after June 10th's reversal. This week, the sentiment ratio rose to a 2.13 reading from 1.79 with nearly 68% of the pool holding long positions. We have seen retail traders consistently fight the trend; and quickly cut positions when price action finally reverses in their direction; and it looks like traders are doing the same thing this time around. In detail, long positions are a modest 0.3% higher since yesterday and a sharp 21.1% higher on the week. On the other side of the trade, shorts rose 0.5% and contracted 23% from last week’s levels. On the whole, net interest grew a meager 4.1% and was 2.1% below the monthly average.
USDCAD – Unlike most of the other dollar denominated majors, USDCAD is not threatening any major technical levels with its recent price action. However, the presence of parity has certainly generated trading activity among the retail group. This past week, volatility in the greenback drove the pair down to test the frequent 1.0000 level; and while direction has been relatively absent, positioning has actually developed to a relative extreme. With spot testing six week lows, the bias in positioning has reached equivalent highs. This week the ratio rose to 2.83 as 74% of the retail sector is now looking for a rebound. Putting this level into perspective, this is just another step in a steady shift to a positioning extreme following last week’s 2.13 reading and 1.79 figure the period before that. In detail, longs have been relatively inactive, increasing their positions only 0.1% since yesterday but rising 9.3% from last Thursday. From the other side of the trade, shorts were unchanged from Wednesday but 9.4% weaker than last week’s levels. Overall, open interest grew 7.0% since last Thursday and is 4.8% above the monthly average.
How to Interpret the SSI? The FXCM SSI is based on proprietary customer flow information and is designed to recognize price trend breaks and reversals in the four most popularly traded currency pairs. The absolute number of the ratio itself represents the amount by which longs exceed shorts or vice versa. For example if the EURUSD ratio is 2.55, long customer orders exceed short orders by a ratio of 2.55 to 1. Conceptually similar to contrarian analyses using the CFTC IMM open position data or COT Report, the SSI provides an alternative approach that is both more timely and accurate in forecasting currency price movement. The SSI is a contrarian indicator that tells you how the market is weighted and where the trend may head. More long positions don't necessary suggest more confidence in the direction of the current trend. In general, when traders start having adverse movements against their position, many tend to increase the size of their position with the purpose to average down their entry price in one last attempt to recover from previous losses. However, the higher the number of short orders in a bull market the more dangerous is to take additional shorts because many of those traders who just entered the markets are also leaving their protective stop losses just above the current price action.
Have comments or questions on this or other articles authored by John? E-mail him at jkicklighter@dailyfx.com.
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