? EUR/USD Thin Trading Condition Drives Open Interest Lower
? GBP/USD Ratio Remains At Extreme Net Short Levels
? USD/JPY Ratio Continues to Signal Further Strength
? USD/CHF 76% of Open Positions are Long
? USD/CAD Positioning Grows Less Net Long
Historical Charts of Speculative Positioning
EURUSD The EUR/USD ratio has remained net short since late October. The indicators contrarian signal has correctly coincided with the currencys 500 point rise to date. Despite the currencys recent correction, the ratio continues to remain short, indicating that the bullish bias is dominant. Today, nearly 57 percent of our most speculative positions are short EUR/USD positions and the ratio of longs to shorts now stand at -1.32. Long orders are 10.6% lower than yesterday and 13.6% weaker since last week. Short orders are 0.6% lower than yesterday and 17.2% weaker since last week. Open interest is 5.2% weaker than yesterday and 10.6% below its monthly average. Looking ahead, the SSI signals that we should soon see an end to the recent EUR/USD correction.
GBPUSD - The sterling positioning ratio flipped to net short in October and has remained mostly net short since then, coinciding with a massive appreciation in the GBP/USD since then. This week, the ratio of longs to shorts is -2.94 as 74.6% of the currently open orders are short. Long orders are 8.0% lower than yesterday and 13.0% weaker since last week. Short orders are 2.9% higher than yesterday and 5.6% weaker since last week. Open interest is 0.1% weaker than yesterday and 5.2% above its monthly average. Looking ahead, the SSI signals GBPUSD strength.
USDCHF - The ratio of longs to shorts is 3.13 as 75.8% of the currently open orders are long. Long orders are 6.3% higher than yesterday and 5.0% stronger since last week. Short orders are 14.6% lower than yesterday and 4.6% stronger since last week. Open interest is 0.3% stronger than yesterday and 6.6% above its monthly average. Looking ahead, the SSI signals USDCHF weakness and confirms the bullish bias in the EUR/USD.
USDJPY Yen speculative positioning has remained net short for most of 2006. After a brief period in positive territory during the month of November, the ratio flipped back to net short early December. Since then, USD/JPY has appreciated by close to 400 pips. The ratio still remains net short, signaling further gains in the currency pair. This week, the ratio of longs to shorts is -1.60 as 61.5% of the currently open orders are short. Long orders are 3.5% lower than yesterday and 1.8% weaker since last week. Short orders are 2.5% higher than yesterday and 4.7% stronger since last week. Open interest is 0.2% stronger than yesterday and 10.8% above its monthly average.
USDCAD - The USD/CAD ratio has remained mostly net long since May 2005, when the pair was trading at 1.26, coinciding with a 2400 pips loss in the currency pair. Today, the ratio of longs to shorts is 1.32 as 57.0% of the currently open orders are long. Long orders are 2.2% higher than yesterday and 12.0% weaker since last week. Short orders are 2.0% lower than yesterday and 14.5% stronger since last week. Open interest is 0.3% stronger than yesterday and 10.4% above its monthly average. Looking ahead, the SSI signals a potential top in USD/CAD
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. If the EURUSD ratio is -3.00 short customer orders in the EURUSD exceed long orders by a ratio of 3 to 1. A negative number indicates that traders are net short while a positive number indicates that traders are net long. 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, higher the number of short orders in a bull market 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.
