Similar to the euro-based major, GBPUSD price action is being guided by a highly visible technical range - and retail traders are proving themselves adept at taking advantage of the clear levels. With the most recent touch of a major descending trend now near 1.9750, the pair’s Sentiment gauge has seen a notable skew towards the short side of the market. The ratio stands at -1.66 with nearly 62% of the retail market short. This compares to the -1.71 reading from last week when spot happened to be testing the same level. The indicator’s details show that despite the modest change in the ratio, there has actually been significant volatility in positioning. From yesterday, longs have dropped 10%, which has led to a 20.5% week-over-week contraction. For those looking for sustained range conditions, shorts have grown only 3.9% from yesterday but are a significant 27.9% higher than last week. Open interest slipped 6.2% from last week, but is still 4.9% above the monthly average.
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[li][B]EURUSD[/B] – Euro SSI Flips As 1.5300 Support Maintains A Wide Range [/li][li][B]GBPUSD[/B] – Speculative Short Pound Interest High As Traders Bet On The Range [/li][li][B]USDJPY[/B] – USDJPY Sentiment Points To Further Upside, Though Momentum Fading [/li][li][B]USDCHF[/B] – SSI Suggests The Window For An Upside USDCHF Breakout Is Closing [/li][li][B]USDCAD[/B] – Positive Interest Among Retail Traders Solidifies USDCAD Range[/li]
[I] While the SSI is available once a week on DailyFX.com, you can receive SSI readings twice a day in [DailyFX-Plus](https://plus.dailyfx.com/tnews/loginForm.jsp)!
The SSI sought a EURUSD rally since 1.26 and was signaling a reversal around 1.60. Find our more in the [DailyFX Forum](http://www.learncurrencytrading.com/fxforum/showthread.php?t=13877).
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[B]
Historical Charts of Speculative Positioning
[/B][B]EURUSD[/B] – Since EURUSD yielded to very public support seen around 1.5300 two weeks ago, positioning among the retail group has quickly turned against the developing move. Typically good range traders, the speculative community is still prone to common trading mistakes – such as setting stops too close and taking profit too early. This may be a contributing factor behind the flip in the EURUSD’s Speculative Sentiment Index ratio this week. The positioning gauge stood at -1.52 with nearly 60% of traders holding short positions. This figure stands in stark contrast to the 1.34 reading of last week and 1.50 from two Thursday’s ago. Such a shift in positioning reflects the retail crowd’s attempts at finding a nearby range top. The report’s details show a relatively uniform market flip. Long positions dropped 20.6% from yesterday and are 23% below last week’s levels. On the other side of the trade, shorts have grown 16.9% over the past 24 hours and risen 20% since last week. Open interest further suggests the opportunity at trading a broad range has kept most retail traders in the market as they merely reverse their positions when technicals come into view. Net positioning was only 0.5% higher than last week and 2.5% above the monthly average. Though the SSI’s effectiveness ebbs when the market holds to clear ranges, the EURUSD sentiment indicator points to further gains within the limits of the broad technical formation.
[B]GBPUSD[/B] – Similar to the euro-based major, GBPUSD price action is being guided by a highly visible technical range - and retail traders are proving themselves adept at taking advantage of the clear levels. With the most recent touch of a major descending trend now near 1.9750, the pair’s Sentiment gauge has seen a notable skew towards the short side of the market. The ratio stands at -1.66 with nearly 62% of the retail market short. This compares to the -1.71 reading from last week when spot happened to be testing the same level. The indicator’s details show that despite the modest change in the ratio, there has actually been significant volatility in positioning. From yesterday, longs have dropped 10%, which has led to a 20.5% week-over-week contraction. For those looking for sustained range conditions, shorts have grown only 3.9% from yesterday but are a significant 27.9% higher than last week. Open interest slipped 6.2% from last week, but is still 4.9% above the monthly average.
[B]USDJPY[/B] – Two month’s of relatively consistent short-side positioning from the retail sector has served the USDJPY SSI well. However, the contrarian reading suggests the bullish run is losing its momentum. This week, the pair’s speculative positioning index stands at -1.48 with 60% of the survey pool holding short positions. And, though this is still a relatively acute short-side reading, it maintains a steady move towards parity following the -1.66 print from last week and -1.93 of two weeks ago. Not only has the steady decline in the USDJPY index’s extreme matched the fading momentum in the underlying pair, but trading activity within the sentiment sector has similarly cooled. Traders increased their long holdings by only 2.5% over the past 24 hours, and a modest 1.3% from last week. On the other side of the market, shorts have edged off 0.2% from yesterday and slipped 2.3% from the same period a week ago. Overall, net positioning fell 5.3% form last week, but open interest is still 2.3% above the monthly average.
[B]USDCHF [/B]– As the dollar’s tentative advance stalls across the majors, USDCHF retail positioning has been particularly attuned to the market shift. The franc-denominated pair has cut a major wedge since losing its footing back in the beginning of May, and the sentiment ratio has steadily worked its way back towards parity over the same period. This week, the Speculative Sentiment gauge settled to -1.02 with retail traders nearly evenly split on direction. For comparison, the index stood at -1.45 last Thursday. Much like USDJPY, the details from the USDCHF report reflect a relatively steady move back towards positioning parity. Long positions were 4.9% higher than yesterday, but were 8.5% lower than last week. At the same time, shorts rose 3.1% over a 24 hour period though they were 3.9% below last week’s level. Net positioning was a slight 0.8% greater than last Thursday, though open interest is still 7.9% higher than last week’s levels. Considering the last major flip in the USDCHF SSI preceded a reversal in the underlying, we will be waiting to see whether another confirmed switch back to consistent net long readings will foreshadow a new down leg.
[B]USDCAD [/B]– Over the past week, USDCAD has extended its steady pullback from range resistance at 1.0325; and in turn, retail traders have become more emboldened in playing an ever more refined technical range. This week, the pair’s SSI ratio rose to 1.82 with 65% of the speculative market holding long trades. On the one hand, this marks a steady increase in confidence that a temporary low is being put into place as today’s reading is significantly more skewed than the previous week’s 1.47 reading and 1.06 figure from two weeks ago. On the other, the current number is hardly an extreme when compared to the levels over the past year. From the report’s details, it is clear that retailer traders are attempting to trade ahead of the market by finding a closer range floor. Long positions are 1.0% higher than yesterday and 5.4% stronger than last week. With 1.01 and parity in the underlying as a reference for support and target, shorts have dropped 5.0% from yesterday and 22.2% from the same day a week ago. However, altogether, open interest has slipped 2.3% over the past week and is 2.3% below the monthly average.
[B]How to Interpret the SSI?[/B] 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 <[email protected]>.
[B]For information on an FXCM Managed Account that takes advantage of the SSI[/B], please review our Sentiment Program at: http://www.fxcmmanagedfunds.com/ or call +1 646-432-2968.
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