Though the EURUSD’s positioning ratio has dipped to a net negative reading, it has not strayed far from a parity 1.00 reading through the week. This directionless sentiment among the retail group coincides with the congestion seen in the underlying pair which has carved a closing wedge between 1.4400 and 1.4900. Looking out over the longer term, the negative reading from the euro’s SSI has steadily diminished for nearly two quarters. Since this is a contrarian indicator, this may be leading to a bearish outlook for the EURUSD over the medium term should the flip build momentum for positioning. What’s more, with open interest up nearly 15 percent over the previous week, whatever signal the SSI is destined for it is growing stronger and therefore more reliable.
• EURUSD – Positioning Trending Higher While Open Interest Rises Steadily
• GBPUSD – Pound Positioning Nears Parity, Signaling A Potential Flip In Our Outlook
• USDJPY – Yen Sell Off Looks To Taper Off According To Positioning
• USDCHF – Bullish Outlook For The Swiss Still Imprinted In Speculative Positioning
• USDCAD – Net Positioning Grows Against The Canadian Dollar Building Retracement Potential
We have been calling for a rally in the EURUSD since the pair was trading at 1.26. Find our more in the DailyFX Forum.
Currency Last Week Present* % Long % Change in Positions Outstanding Signal EUR/USD -1 -1.05 49% 14.55% Bullish GBP/USD 1.44 1.06 51% 21.97% Bearish USD/JPY 1.74 1.41 58% 27.93% Bearish USD/CHF 1.42 1.35 57% -1.81% Bearish USDCAD 2.24 2.33 70% 7.47% Bearish * Negative ratio indicates net short
Historical Charts of Speculative Positioning
EURUSD - Though the EURUSD’s positioning ratio has dipped to a net negative reading, it has not strayed far from a parity 1.00 reading through the week. This directionless sentiment among the retail group coincides with the congestion seen in the underlying pair which has carved a closing wedge between 1.4400 and 1.4900. Looking out over the longer term, the negative reading from the euro’s SSI has steadily diminished for nearly two quarters. Since this is a contrarian indicator, this may be leading to a bearish outlook for the EURUSD over the medium term should the flip build momentum for positioning. What’s more, with open interest up nearly 15 percent over the previous week, whatever signal the SSI is destined for it is growing stronger and therefore more reliable.
GBPUSD – The GBPUSD SSI net long reading has faded over since last week. From 1.44 reported last Thursday, the ratio now stands at 1.06 – just above parity. In fact, just a day ago, the ratio was still at 1.39. In the span of a day, long positions fell 6.0% and are actually 3.5% higher from a week ago. Shorts on the other hand, jumped 25.3% from the yesterday and are 49.8% stronger from a week ago. Open interest is rising as the SSI reading approaches parity. From yesterday, open positions are 7.1% higher and is 25.8% above the monthly average. As the SSI is a contrarian indicator, the long position is still signaling further GBPUSD losses.
USDJPY – USDJPY positioning has moved towards parity over the past week, trimming the SSI reading from 1.74 a week ago to 1.41. Yesterday, the ratio stood at 1.48 as longs accounted for 60% of positions. In detail, long positions are up 6% from yesterday and 11.5% stronger than last week. Short positions jumped 13.6% from yesterday and have grown a startling 58.9% from last week. With the significant increase in both longs and shorts, open interest is 9.1% stronger than yesterday and 29.7% above the monthly average. The SSI is a contrarian indicator and therefore signals further USDJPY losses.
USDCHF – The SSI reading for USDCHF has held relatively stable since the beginning of the year. A 1.35 reading compares to the 1.42 print from a week ago and 1.55 figure from a week ago. As we would expect, the steady positioning coincides to little change open interest. From yesterday, open interest is 1.4% weaker and is 1.7% below its monthly average. Looking further into the ratio’s details, long positions are 7.1% lower than yesterday and 7.1% weaker than a week ago. Short positions have grown 7.5% from Wednesday and are 6.1% stronger than last week.
USDCAD – The consistently net-long reading from USDCAD continued for another week. A 2.33 reading from the pair’s Speculative Sentiment Index marked an increase in net longs from the 2.24 print from last week. Yesterday, the ratio stood at 2.45. In detail, long positions are 2.0% stronger than yesterday and 9.8 percent higher than last week. Short positioning grew 4.9% from yesterday and 4.0% from last week. Open interest is 2.8% stronger than yesterday, 7.5% higher than last week and 7.7% above its monthly average. The SSI is a contrarian indicator and signals more USDCAD losses.
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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