The dollar has marked an impressive comeback over the past few days, and the currency’s strength is certainly reflected in retail positioning. For the currency market’s most liquid pair, the dollar’s advance has led speculators to take positions against the swing and once again bank on the stability of a long-term trend. The EURUSD Speculative Sentiment Index ratio flipped back into positive territory for the first time since June 19th. Today, the ratio stands at 1.28 with nearly 56% of the retail crowd holding long positions – hardly extreme compared to readings across the market, but not far off the 20-month record skew for the EURUSD gauge seen back in June.
• EURUSD – Euro SSI Flips For The First Time In A Month
• GBPUSD – Retail Traders Up The Ante In Fighting A GBPUSD Market Change
• USDJPY – A Potential USDJPY Breakout Leads SSI To A 13-Month Extreme
• USDCHF – USDCHF Sentiment At Levels Not Seen Since Late April Rally
• USDCAD – High Volatility And USDCAD Rebound Settles Canadian SSI
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.
Historical Charts of Speculative Positioning
EURUSD – The dollar has marked an impressive comeback over the past few days, and the currency’s strength is certainly reflected in retail positioning. For the currency market’s most liquid pair, the dollar’s advance has led speculators to take positions against the swing and once again bank on the stability of a long-term trend. The EURUSD Speculative Sentiment Index ratio flipped back into positive territory for the first time since June 19th. Today, the ratio stands at 1.28 with nearly 56% of the retail crowd holding long positions – hardly extreme compared to readings across the market, but not far off the 20-month record skew for the EURUSD gauge seen back in June. This notable shift in positioning from the long-term speculative bears comes thanks to the pair’s recent pull back towards a very clear rising trendline that begins with the August 18th swing low from last year. Looking into the details of the sentiment report, trading activity has certainly picked up. Trading against the developing downswing, long positions grew 16.1% from yesterday and are 42.2% higher on the week. On the other side of the market, profit taking and triggered stops led shorts to slip 9.4% through the day and 19.3% over the week. With the increase in activity, open interest has grown 6.4% on the week and is 8.2% above the monthly average.
GBPUSD – For the past two weeks, GBPUSD has been relatively range bound – though volatile. However, despite the lack of direction from one of the most active majors, speculative positioning remains relatively extreme. This week, the pound’s SSI reading held at -2.18 with 69% of the market holding short positions – compared to the -2.30 reading from the same time a week ago. It seems that speculative traders are once again banking on the persistence of broad range conditions that have kept GBPUSD more or less in line throughout this year. It should be noted however that such extremes were seen just before the pair broke above a notable trendline and the closely watched 2.0000 level just a few weeks ago. In detail, long trades have dropped 31.7% over the past 24 hours and are 8.7% below last week’s levels. On the other hand, while shorts have jumped 21% from yesterday, bearish positions are actually 12.6% weaker from last Thursday. The curbed interest on both sides of the market has led net positioning to drop 11.6% on the week to a level 5% below the monthly average.
USDJPY – Last week’s move below 106.00 proved to be a false breakout for the USDJPY; and the reversal in spot has clearly led to an about face for speculative positioning. In fact, from the 1.38 reading from last week (the previous Tuesday’s reading marked the highest positive skew in four months) the sentiment gauge is now standing at -2.12 with nearly 68% of the mob holding bearish positions – the greatest ratio of short interest in over a year. This bias was initially reached when spot approached a highly visible, descending trendline with roots going back to last August. However, even after the dollar pushed through this boundary, the extreme sentiment reading held as the range traders looked for 108.50 to step in as a more definitive ceiling. The details from the report suggest a significant round of tripped stops and more traders looking to the fight this short-term trend. From the bullish side of the trade, longs were little changed on a 0.1% rise from the previous session, but were a notable 29.2% weaker than last week. At the same time, shorts were unchanged but 17.5% greater than last Thursday. Following in the footsteps of its pound counterpart, USDJPY open interest dropped 12.1% through the week and is now only 2.1% above the monthly average.
USDCHF – Through the first half of this week, USDCHF rallied more than 200 points to meet the upper boundary of a well known trend channel. This congestive price pattern has defined resistance and support in the underlying pair since early May; and the retail community clearly believes it will continue to stand against this most recent advance. The USDCHF SSI ratio was reporting the greatest short-side interest in two months with a -1.95 reading today. This compares to the relatively moderate 1.18 figure from last Thursday and -1.07 of two weeks ago. While the shift in the headline reading was significant, it certainly does not do the underlying activity justice. The details of the indicator shows long traders slipped 4% in 24 hours and 25.8% over the week. Far more active was the 12% jump in short interest from Wednesday and the 73% surge since last Thursday. With the increase in short-interest easily outpacing the closed long trades, net positioning actually rose 18.5% week-over-week which brings open interest to a level 13.5% above the monthly average.
USDCAD – While the sentiment readings from the other majors have pushed to extremes or marked notable flips with heightened price action from their underlying pairs, sentiment from USDCAD traders has remained relatively steady. A rebound from parity has in fact depressed bullish interest with the ratio slipping from last week’s 2.83 reading to 1.86 with nearly 65% of the retail sample holding onto their long positions. Altogether, this is not surprising considering the pair is set in the middle of a broad range that has thwarting a major trend since November. Reflecting the otherwise tepid activity in spot, the breakdown of the USDCAD’s Sentiment report reveals the actions of short-term range traders trying to call the quick turns. From the bullish crowd, positions were unchanged on the day but down 9.9% for the week. A short-term trendline and temporary range high, on the other hand, have led USDCAD bearish positions to jump 13.5% on the week – though they are unchanged from yesterday. Changes to open interest were modest with the lack of activity. Net positioning was 2.8% lower on the week and 2.3% above the average.
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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