The flip in EURUSD speculative positioning has held its ground over the past week, suggesting there may be more momentum for a genuine reversal rather than a mere pull back like in March and November. Price action looks as if a change in trend is already playing out. When EURUSD fell below 1.5800, a long-term rising trendline was broken. The next step in the bearish downdraft was spot’s drop below the 1.5500 milestone.
[I][B]- EURUSD – Euro Downside Builds As Retail Traders Add To Longs
- GBPUSD – Pound Flips Yet Again As 1.97 Range Low Holds
- USDJPY – USDJPY Steady Advance Supported By Modest SSI Reading
- USDCHF – Bullish SSI Signal Intensifies For USDCHF
- USDCAD – Steady Advance Tests USDCAD Range And Positioning[/B][/I]
While the SSI is available once a week on DailyFX.com, you can receive SSI readings twice a day in DailyFX-Plus!
The SSI sought a EURUSD rally since 1.26 and was signaling a reversal around 1.60. Find our more in the DailyFX Forum.
* Negative ratio indicates net short
Historical Charts of Speculative Positioning
EURUSD – The flip in EURUSD speculative positioning has held its ground over the past week, suggesting there may be more momentum for a genuine reversal rather than a mere pull back like in March and November. Price action looks as if a change in trend is already playing out. When EURUSD fell below 1.5800, a long-term rising trendline was broken. The next step in the bearish downdraft was spot’s drop below the 1.5500 milestone. However, with the Speculative Sentiment Index ratio standing only at 1.31 (with 57% of traders long), the contrarian indicator is still mild meaning each psychological level could develop into a significant hurdle. Looking at the details of the survey, the shift in sentiment seems to have been orderly. Long positions rose 8.2% from yesterday and are only 7.3% higher than a week ago. At the same time, the move below 1.5500 has led short positions to fall 14.5% since yesterday – though they are only 4.1% weaker than last week. Overall, open interest is only 3.3% greater than last week and 6.0% above the monthly average.
GBPUSD – Each week GBPUSD retail traders seems to flip from a net short position to net long and back again. This past week has been no exception. Standing at -1.2 7 today, the pound’s SSI reading follows a 1.04 figure from last week and -1.37 the week before that. Looking at underlying price action, the lack of extremes from the contrarian speculative sentiment gauge should come as no surprise. GBPUSD continues to carve a channel between 2.0000 and 1.9600; and until direction is decided, retail traders will keep jumping in and out of the market taking advantage of the range. In detail, long positions fell 7.6% from yesterday and are 15% weaker than levels from last week. On the short side, bearish positions fell 3.5% from Wednesday but were 15.6% stronger on the week. On the whole net positions were only 0.1% greater than the same day a week ago but 5.1% greater than the monthly average.
USDJPY – The steady yet reserved advance in USDJPY is supported by an equally reserved SSI reading. Speculative positioning shows nearly 52% of retail traders are short the pair, creating a ratio of -1.10. This is on par with the readings from over the past few weeks: last week reported a -1.26 and the number before that stood at -1.23. As a contrarian indicator, this sentiment gauge points to further gains; but the signal is relatively weak. From the USDJPY rally through last June, we can interpret a strong reading as being near or above -2.00. From the details, it seems retail traders are starting to turn into the pair’s steady advance. Long positions grew 5.1% from Wednesday and have risen 12.3% on the week. Shorts on the other hand slipped 1.2% since yesterday and are 8.7% weaker than last Thursday. On the whole, total open interest is 2.7% greater than last week’s levels and 5.7% above the monthly average.
USDCHF – Risk trends must be loosing there influence over the currency market if the USDJPY is relegated to a slow advance while USDCHF enjoys a much more aggressive reversal. Like last Thursday, the Swissie-based major has produced another sharp rally that has cleared range resistance. As we would expect, retail traders have fought the move with the SSI ratio growing more extreme with a -2.13 figure that represents 68% of traders holding short positions. Then again, though the pair is pushing a new extreme, the change from net change in position from last week has been relatively modest. Long interest grew a meager 0.5% from yesterday and is only 1.5% greater than yesterday. At the same time, shorts rose 3.3% from yesterday and are 1.0% lower than last Thursday. Total positions are 2.4% greater than yesterday and 5.7% above the monthly average. As a contrarian indicator, the USDCHF’s SSI reading offers the strongest call for further gains across the majors.
USDCAD – The incredible consistency of the USDCAD’s positive SSI reading seems to be fading; but is this trend leading to a possible flip? This past week, the pair’s ratio cooled to a 1.77 from the 1.96 reading reported last week, even though underlying price action has held to a 200-point range. What’s more, this modest congestion is still set within a much broader range between 0.9800 and 1.0350 that has dominated price action since last November – which happens to coincide with sentiment falling back from extremes on the level of 6.00 and 7.00 to recent extremes that top out around 2.00. Until the market can find direction from this congestion zone, sentiment readings are likely to hold these historically mild levels. From the details of the report we can see USDCAD trading has been more active than its major counterparts. Since yesterday, long positions have dropped 11.1% though they are only 1.5% weaker since last Thursday. Short trades grew 15.1% from Wednesday but were also 11.2% stronger than last week. Overall open interest is only 0.2% greater on the week and 3.3% above the monthly average. As a contrarian indicator the SSI points to further losses from USDCAD; but it’s historically mild levels and the underlying’s range should prompt caution.
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.
Have comments or questions on this or other articles authored by John? E-mail him at <[email protected]>.
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