An intraday test of fresh record highs for the euro has revived the disparity in speculative EURUSD positioning. Following the previous two week’s readings of -1.19 and -1.16 respectively, the pair’s SSI ratio bounced back to -1.72 as retailers try once again to pick call a major reversal on the basis of a possible triple top. However, sentiment is still broadly trending towards parity and a potential positive flip as speculative traders tire in their fight against the trend.
• EURUSD – Euro Positioning Jumps As Retailers Try To Call A Top
• GBPUSD – Pound Congestion Keeps SSI Close To Parity
• USDJPY – Yen’s Flip Reversed As Currency Forces A Breakout
• USDCHF – Positioning Suggests USDCHF May Be Forming Bottom
• USDCAD – Retail Traders Await USDCAD Direction As Range Holds
While the SSI is available once a week on DailyFX.com, you can receive SSI readings twice a day in DailyFX-Plus!
[I]The SSI has been calling for a rally in the EURUSD since the pair was trading at 1.26. Find our more in the DailyFX Forum.
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* Negative ratio indicates net short
Historical Charts of Speculative Positioning
EURUSD – An intraday test of fresh record highs for the euro has revived the disparity in speculative EURUSD positioning. Following the previous two week’s readings of -1.19 and -1.16 respectively, the pair’s SSI ratio bounced back to -1.72 as retailers try once again to pick call a major reversal on the basis of a possible triple top. However, sentiment is still broadly trending towards parity and a potential positive flip as speculative traders tire in their fight against the trend. The report’s details show long positions have grown 6.8% from yesterday, though they are 1.9% weaker last Thursday. Shorts on the other hand, are 2.6% fewer than Wednesday and 19.0% greater than last week. Open interest is 9.3% higher than same day a week ago and a modest 4.6% above its monthly average. As a contrarian indicator, the EURUSD SSI points to further gains; though we continue our watch for a potential flip.
GBPUSD – The Speculative Sentiment Index reading for GBPUSD held its modest, negative level for the yet another week. The sterling’s SSI ratio stood at -1.26, marking another step towards parity following last week’s -1.39 reading and the previous week’s -1.50 print. The lack of direction from this pair has dampened the effectiveness of the contrarian reading and highlights the reality that retail traders post better results in range conditions. From the details, long positions have jumped 20% from yesterday and are 11.6% stronger than last week. Adding to shorts was more reserved, rising 7.3% from Wednesday and only 2.3% from last week. With congestive price action in place, open interest has grown 12.6% since yesterday and 7.7% from last week.
USDJPY – After spending no more than five days in positive territory, the USDJPY sentiment ratio has once again flipped back to a positive reading. The quick reversal in positioning came after the pair marked a breakout from a quickly closing, technical wedge. The components of the report reveal considerable volatility as the ratio jumps around parity. Long positions rose 16.7% from yesterday and surged 40.7% from last Thursday – when the ratio was still negative. Short positions are only 3.6^% weaker than yesterday and 5.2% greater than last week. And, despite the significant breakout, open interest has been relatively unmoved. Total positioning rose only 6.1% from Wednesday and is 9.1% below its monthly average. While the SSI is a contrarian indicator, and therefore points to further downside for USDJPY; a reading so close to parity could see another flip before the trend is decided.
USDCHF – The Swiss franc is considered to be in the same fundamental boat as the Japanese yen (acting as a proxy for risk), yet positioning between the two majors has taken different paths. Where USDJPY net positioning has seen flipped back and forth in recent weeks, USDCHF’s ratio has gone relatively unchanged. What’s more, underlying price action remains more congestive – offering the foundation for a possible bottom formation. The Index ratio stands at -1.60 with nearly 62% of traders short. This is a modest change from yesterday’s -1.71 print and last week’s -1.52 figure. Conversely the details reveal considerable volatility. Longs are 20.3% higher than yesterday and 21.9% weaker than last week. Short positions jumped 12.8% from Wednesday and are 27.6% stronger than last Thursday. Overall, open interest is 20.1% stronger than last week and 16.6% above the monthly average.
USDCAD – Positioning in the Canadian dollar-backed major has maintained its proximity to parity. The SSI ratio was at 1.65 with nearly 62% of traders long versus a reading of 1.64 from last week. The details of the index show changes in open interest and positioning on both side of the pair have been very modest, owing to the wide range USDCAD is cutting. Long positions are only 0.5% greater than yesterday and unchanged from last week. Shorts are 3.7% greater than yesterday and only 2.9% higher than they were last week. At the same time, total open interest is 1.7% stronger than yesterday and 1.1% below the monthly average. Since the SSI is a contrarian indicator, the reading points to further USDCAD declines. However, much like USDCHF, the congestive conditions in underlying price action and the very modest reading in positioning suggest the pair is still struggling to find the next major trend.
Written by John Kicklighter, Currency Analyst for DailyFX.com
Have comments or questions on this or other articles authored by John? E-mail him at <[email protected]>.
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.
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