The long-standing net negative Speculative Sentiment reading from the EURUSD cooled from last week. This was complemented by underlying price action as the pair finally faltered in its steady rally from the February 8th swing low by retracing 500 points from the euro’s 1.59 high. The SSI now stands at -1.47 compared to -1.40 yesterday and 1.63 last Thursday.
[I][B]• EURUSD – Euro Positioning Still Net Negative, But Growing Less Extreme
• GBPUSD – Pound Ratio Grows More Extreme, Points To The Upside
• USDJPY – The Yen’s Sharp Reversal Cools The Extreme SSI Reading
• USDCHF – Swiss Franc Sees A Sharp Jump In Open Interest From Last Week
• USDCAD –Canadian Dollar’s Extreme Steadily Heading For A Flip[/B][/I]
[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.[/I]
* Negative ratio indicates net short
[B]Historical Charts of Speculative Positioning[/B]
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[B]EURUSD – [/B]The long-standing net negative Speculative Sentiment reading from the EURUSD cooled from last week. This was complemented by underlying price action as the pair finally faltered in its steady rally from the February 8th swing low by retracing 500 points from the euro’s 1.59 high. The SSI now stands at -1.47 compared to -1.40 yesterday and 1.63 last Thursday. Looking back over the historical, weekly SSI readings, positioning extremes have not breached -2.00 since October. This suggests retail traders are slowly coming to accept the euro’s strength; and therefore the trend itself may be flagging. Looking at the details, open interest was modestly above its 1.4% monthly average, though it was also significantly weaker than last week. Long positions are 1.8% fewer than yesterday and 5.7% more than last Thursday. Short positions are 2.6% greater than Wednesday but a sharp 13.5% weaker than last week.
[B]GBPUSD – [/B]The pound saw a massive reversal last week, and a modest net negative positioning has held throughout the move. The GBPUSD’s SSI reading stood at -1.30, compared to -1.37 from yesterday and -1.06 from last week. The lack of extreme readings this pair has seen recently was interestingly echoed in the sharp drop in open interest from last week. Net positions has also fallen 8.8% from yesterday and is 14.8% below its monthly average. Long positions have seen the most remarkable change, falling 44.6% from last week and 6.0% from Wednesday. Short positions on the other hand have dropped 10.8% from yesterday and 10.7% from last Thursday. Since the SSI is a contrarian reading, the pickup in the negative ratio reading points to gains from GBPUSD.
[B]USDJPY – [/B]Like most of the other majors, the USDJPY’s Sentiment reading has grown less extreme over this past week. Its ratio eased significantly to 2.08 from 2.46 yesterday and 2.84 from just last week. A sharp reversal from 12 year lows and retest of 100 is likely the basis for the tempering. Open interest, on the other hand, hasn’t suffered from the push into recent record highs and the pickup in volatility. Net positioning, while down 5.7% from Wednesday, is actually 19.6% above its monthly average. Showing retailers’ frequent attempts at catching major reversals and taking profit quickly, long positions are 21.1% stronger from last week but 14.0% weaker than Wednesday. At the same time, shorts have jumped 17.7% from yesterday yet are 12.7% weaker than last Thursday. As a contrarian reading, the SSI is signaling further downside for USDJPY.
[B]USDCHF – [/B]Like EURUSD, the USDCHF marked a significant reversal from price action over the past week. However, unlike its typically highly correlated counterpart, the Swissie-denominated major actually marked a sharp jump in open interest from last week. What’s more, the USDCHF’s SSI reading actually grew more extreme at -1.24 from -1.14 from last week and -1.01 from Wednesday. With the pair’s extreme volatility and record lows, positioning has been shifting dramatically. Long positions dropped 21.9% from yesterday and 30.9% since last Thursday. Short positions were 4.7% weaker than Wednesday and 30.3% stronger than last week. Despite USDCHF’s building momentum, open interest is actually 13.2% weaker than yesterday and 7.5% below its monthly average.
[B]USDCAD – [/B]The USDCAD has finally found some direction and seen a dramatic jump in underlying volatility. The upside direction has in turn worked to depress the SSI’s reading to its lowest overall reading in months. The pair’s 1.59 ratio compares to the 2.19 reading from last week, which is consistent with the significant reduction in positioning volatility since October and may in turn point to a potential flip in the near future. Open interest was only 1.4% weaker than Wednesday and 14.1% below the monthly average. Long positions edged 0.8% higher than yesterday and a significant 23.1% weaker than last week. Short positions were 4.7% lower than Wednesday and 8.2% stronger than the week before. The SSI is a contrarian indicator and therefore points to further USDCAD losses; but we will watch for the flip soon.
[B]Written by John Kicklighter, Currency Analyst for DailyFX.com[/B]
Have comments or questions on this or other articles authored by John? E-mail him at <[email protected]>.
[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.
[B]For information on an FXCM Managed Account that takes advantage of the SSI, [/B]please review our Sentiment Program at: [U]Portal - FXCM.com or call +1 646-432-2968.