It has finally happened. The EURUSD Speculative Sentiment Index flipped to a net positive reading of 1.14. Encouraged by a sharp yet steady drop in the pair below a major rising trend, this momentous shift in positioning offers the first signs of a major reversal after more than two years of a solid bull trend. With nearly 53% percent of traders holding long positions, this reading is still somewhat weak, but no doubt reflects early profit taking on breakout trades and overrun limit and stop orders.
[B]- EURUSD – Euro SSI Flips For The First Time Since 2006
- GBPUSD – Range Bound Pound Sees Another Positioning Flip
- USDJPY – Contrarian Reading Points To Stronger USDJPY Advance
- USDCHF – Negative USDCHF SSI Holding Extremes With Pair’s Rally
- USDCAD – USDCAD Positioning Little Changed As Range Holds
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EURUSD[/B] – It has finally happened. The EURUSD Speculative Sentiment Index flipped to a net positive reading of 1.14. Encouraged by a sharp yet steady drop in the pair below a major rising trend, this momentous shift in positioning offers the first signs of a major reversal after more than two years of a solid bull trend. With nearly 53% percent of traders holding long positions, this reading is still somewhat weak, but no doubt reflects early profit taking on breakout trades and overrun limit and stop orders. Looking at the details, longs have jumped 18.6% since yesterday and are 15.7% higher than they were last Thursday. Short positions on the other hand have dropped 18.4% from Wednesday and are 24.5% weaker than last week. Overall open interest fell a modest 4.4% from last week as stops are triggered, but total positions are actually 2.5% above the monthly average. Though it is still a weak signal, the contrarian SSI points to further EURUSD downside ahead.
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GBPUSD[/B] – A polar opposite to the EURUSD and its historical change in positioning, the pound-based major would also produce a flip of its own; but it would come with far reduced meaning for contrarian traders. The GBPUSD SSI reading rebounded to 1.04 from -1.37 last Thursday, though this otherwise modest move came with sizable changes in positioning from each side of the pair. The report’s details show long trades jumped 16.7% from yesterday and are 48.6% greater than last week. At the same time, shorts dropped 16.7% from yesterday, but were 11.5% higher than last week’s levels. Despite these considerable moves net open interest was little moved – falling 6.5% from last week while remaining 5.2% above the monthly average. With GBPUSD still in a broad range and positioning holding close to parity, the pair’s SSI readings will likely continue to see flips in the near future.
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USDJPY[/B] – The USDJPY Speculative Sentiment Index has held in negative territory for another week, pointing to a sustained advance from the underlying pair’s reversal in mid-March. However, like the pound, the USDJPY sentiment reading has maintained moderate readings since its flip. The ratio stood at -1.26 today, compared to -1.23 a week ago, with nearly 56% of retail traders holding short positions. The details offer a hint at greater activity. Though long positions were 8.7% greater than yesterday, the have plunged 46% since last week. In contrast, a mere 2.6% rise in shorts since Wednesday belies the 45.2% drop from last week. Open interest grew 5.2% from yesterday though it is only 1.3% above the monthly average. As a contrarian indicator, the SSI points to further gains for USDJPY though an extreme, net negative reading would certainly boost the efficacy of the signal.
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USDCHF[/B] – The USDCHF’s SSI ratio reached a new extreme this week. A -2.12 reading shows that nearly 68% of speculative retail traders are net short. And, while today’s reading is slightly lower than the -2.14 figure from yesterday, this week’s new extreme matches the net negative readings from the final quarter of 2006. What’s more, the steady shift in the balance to an extreme short reading suggests upside potential is building. From the report, details show longs are 8.9% greater than yesterday but 16.3% below last Thursday’s levels. Shorts were 8.4% stronger than yesterday and a staggering 59.7% stronger than last week. And, despite the surge in short positions, open interest was actually 2.2% weaker than last week though it is also 17.5% above the monthly average. The SSI is a contrarian reading, so the steady push towards more extreme readings points to further gains for USDCHF going forward.
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[/B][B]USDCAD[/B] – Spending another week in the broad range between 103.50 and 97.50, the USDCAD’s Speculative Sentiment Index continues to see little significant change in retail positioning. The pair’s ratio stands at 1.96 - with 66% of traders long - compared to the 1.98 figure from last week. The breakdown of the report shows that long positions were only 0.3% stronger than yesterday and up 1.7% on the week. The opposite side saw much of the same. Total short positioning slipped 4.2% from Wednesday and was up 1.4% stronger since last week. Open interest was a moderate 5.8% higher than last week’s levels raising net positioning 3.9% above its monthly. As a contrarian indicator, the SSI points to further downside for the USDCAD. However, such moderate readings (compared to the summer and fall of last year) diminishes the signal; and it will likely remain this way until the underlying pair makes a notable break from congestion.
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.
[I]Have comments or questions on this or other articles authored by John? E-mail him at <[email protected]>.[/I]
For information on an FXCM Managed Account that takes advantage of the SSI, please review our Sentiment Program at: http://www.fxcmmanagedfunds.com/ or call +1 646-432-2968.
