-EUR/USD Extreme Short Positioning Signals Dollar Weakness
-GBP/USD Open orders Up by 42 Percent
-USD/JPY Speculative Positioning Flips to Net Long
-USD/CHF Ratio Confirms the EUR/USD Sentiment
-USD/CAD Net Positioning Close to Parity
**Twice a day SSI can be found on FXCMTR under Intraday Analytics
EURUSD - The ratio of speculative longs to shorts is negative 4.05 as 80% of the currently open orders are short. Traders positioning flipped to net short in October and has remained negative since then, coinciding with a substantial 300 pips appreciation in the currency pair. Today, long orders are 24% lower than yesterday and 19.7% weaker since last week. Short orders are 25.4% higher than yesterday and 35.3% stronger since last week. Open interest is 11.1% stronger than yesterday and 23.2% above its monthly average. The SSI signals more EURUSD strength since historically the ratio has been working as contrarian indicator and has been particularly accurate during trending markets.
GBPUSD - The ratio of longs to shorts is -4.58 as 82% of the currently open orders are short. Today, long orders are 24.5% lower than yesterday and 17.2% weaker since last week. Short orders are 36.4% higher than yesterday and 70.6% stronger since last week. Open interest is 19.2% stronger than yesterday and 24.9% above its monthly average. The sterling ratio flipped to net short on October when the currency pair was trading at 1.86 and has been signaling GBPUSD strength since then.
USDCHF - The ratio of longs to shorts is 3.31 as 76.8% of the currently open orders are long. Long orders are 30.6% higher than yesterday and 70.3% stronger since last week. Short orders are 13.1% higher than yesterday and 56.8% stronger since last week. Open interest is 26.0% stronger than yesterday and 57.9% above its monthly average. Looking ahead, the SSI signals USDCHF weakness and confirms the EUR/USD momentum given the correlation between both pairs.
USDJPY - The ratio of longs to shorts is 1.42 as 58.7% of the currently open orders are long. The USD/JPY sentiment has remained mostly net short since June 2006 but recently flipped to net long ahead of the cruel carry trade unwind on Wednesday. Long orders are 39.1% higher than yesterday and 78.2% stronger since last week. Short orders are 19.0% lower than yesterday and 20.6% weaker since last week. Open interest is 7.3% stronger than yesterday and 18.2% above its monthly average. Looking ahead, the SSI signals further USDJPY weakness.
USDCAD - The ratio of longs to shorts is 1.37 as 57.9% of the currently open orders are long. Today, long orders are 3.6% higher than yesterday and 6.8% stronger since last week. Short orders are 28.1% lower than yesterday and 5.8% stronger since last week. Open interest is 12.6% weaker than yesterday and 13.1% above its monthly average. Speculative sentiment has remained mostly net long since May 2005 coinciding with the 2300 pips depreciation of the US dollar against the loonie and confirming the strength of the ratio as a contrarian indicator. The current positioning continues to favor dollar weakness.
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.
