EURUSD – Shift in Positioning Warns of Imminent Reversal
GBPUSD – Jump in Long Orders Suggests GBPUSD May Continue Falling
USDJPY – Increase in Short Orders Signals Further Correction before Drops
USDCHF – Likelihood of Reversal Increases on Changing Positioning
USDCAD – Continues to Signal Further USDCAD Losses
[B]EURUSD [/B]– FXCM positioning data shows that 53% of traders remain short the EURUSD, but long positions have surged 37.2 percent since last week’s report. The sudden shift in crowd sentiment suggests that the EURUSD may see further correction before resuming its uptrend, and a flip to net-long positioning would give clear warning of potential EURUSD drops. A 13.1 percent drop in short positions since last week confirms that the crowd is progressively becoming bullish the EURUSD—a potential warning as to the short-term direction of the currency pair.
[B]GBPUSD [/B]– The FXCM SSI shows similar signs for potential reversal in the GBPUSD, with only 51 percent of traders short the currency pair. This represents a 52.1 percent weekly surge in long positions and a similarly pronounced 28.7 percent drop in short positions. Though the headline index remains very marginally bullish for the GBPUSD, the shift in sentiment suggests that we may see further short-term correction before any substantive rallies. Likewise significant, a flip to SSI net-long on the GBPUSD typically precedes sizeable declines.
[B]USDJPY [/B]- The ratio of long to short positions in the USDJPY stands at 1.50 as nearly 60% of traders are long. Yesterday, the ratio was at 1.56 as 61% of open positions were long—hardly a substantial change. Yet the weekly change shows that short positions have grown 2.5 percent and long positions decreased by 12.1 percent—suggesting that we could see further USDJPY short-term correction before a resumed downtrend. Given that the SSI is a contrarian indicator, however, the medium-term USDJPY direction may remain to the downside.
[B]USDCHF [/B]- The ratio of long to short positions in the USDCHF stands at 1.15 as nearly 53% of traders are long. Yesterday, the ratio was at 1.48 as 60% of open positions were long. In detail, long positions are 13.1% lower than yesterday and 34.1% weaker since last week. Short positions are 12.2% higher than yesterday and 34.5% stronger since last week. Open interest is 2.9% weaker than yesterday and 2.1% below its monthly average. The SSI is a contrarian indicator and signals more USDCHF losses.
[B]USDCAD [/B]– The ratio of long to short positions in the USDCAD stands at 1.88 as nearly 65% of traders are long. Yesterday, the ratio was at 2.03 as 67% of open positions were long. In detail, long positions are 4.8% lower than yesterday and 5.0% weaker since last week. Short positions are 2.7% higher than yesterday and 0.1% weaker since last week. Open interest is 2.3% weaker than yesterday and 9.2% below its monthly average. The SSI is a contrarian indicator and signals more USDCAD losses.
[I]**Twice a day SSI can be found on DailyFX+ under Intraday Analytics[/I][I][/I]
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.
For information on an FXCM Managed Fund that takes advantage of the SSI, please review our Sentiment Fund at: http://www.FXCMManagedFunds.com or call +1 646-432-2968
[B][I]Written by David Rodríguez, Currency Analyst for DailyFX.com[/I][/B]