According to a sample of our dealing desk statistics, the ratio of long to short positions in the EURUSD stands at negative 2.38 as nearly 70% of traders are short. Moreover, since last week, retail has been aggressively selling EURUSD (short positions are up by 23.5%). Also, open interest is 1.1% stronger than yesterday and 12.1% above its monthly average. In the past, when retail was short and selling more, the EURUSD has rallied in the following days.
EURUSD - Contrarian Traders Target EURUSD at 1.40 ahead of Next Week?s Fed meeting
GBPUSD - Sterling Speculative Positioning Remains Close to Parity
USDJPY - Positioning Ratio Grows Less Extreme on Stops liquidation
USDCHF - 74 percent of traders are long U.S. dollars against the Swiss franc
USDCAD - Positions Outstanding Rise More than 20 percent
[B]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