The consensus is still out on whether the EURUSD is seeing the beginnings of a major reversal, but the Speculative Sentiment Index has now entered its third week with a net positive reading. On the other hand, while we hadn’t even seen a net positive reading since the final quarter of 2006 until recently, the positioning report is still very mild. With a ratio of 1.10, only 52% of the retail traders polled are long.
• EURUSD – Euro SSI Points To Further Loses For A Third Straight Week
• GBPUSD – Positioning Flips As GBPUSD Looks For Direction On A Break Of 1.96
• USDJPY – Traders Split On USDJPY As Pair Consolidates
• USDCHF – USDCHF SSI Cooling But Still A Strong Sign For Bulls
• USDCAD – Range Still Rules USDCAD, SSI Direction Remains Weak
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.
* Negative ratio indicates net short
Historical Charts of Speculative Positioning
EURUSD – The consensus is still out on whether the EURUSD is seeing the beginnings of a major reversal, but the Speculative Sentiment Index has now entered its third week with a net positive reading. On the other hand, while we hadn’t even seen a net positive reading since the final quarter of 2006 until recently, the positioning report is still very mild. With a ratio of 1.10, only 52% of the retail traders polled are long. This compares to a 1.31 reading last week when 57% of traders were betting on a rise in the euro. Looking back to 2005, during the last significant EURUSD downswing, the sentiment gauge was frequently above 2.00. Looking at the indicator’s statistics, retail traders have been more apt to follow the recent pull back in EURUSD. Long positions dropped 10% since yesterday though they were only 5.1% weaker than last Thursday. At the same time, short positions grew 11.3% from Wednesday and are 8.9% stronger on the week. Open interest has been relatively steady, falling 1.1% over the week and holding 2.6% above its monthly average. The SSI points to further EURUSD downside; but until a trend is established, the reading will likely remain weak.
GBPUSD – The steady trend of the GBPUSD SSI flipping from one week to the next was maintained through this Thursday. The positioning gauge reported a 1.31 reading today as 57% of traders took on long positions. To keep a tally on the volatility of this gauge, the sentiment reading stood at -1.27 last week and 1.04 the week before that. This back and forth between net positioning has from the underlying pair’s congestive price action. However, with the GBPUSD breaking below 1.96 to a new two-and-a-half month low yesterday, the market may be finding direction which would lead to stronger readings. The details show that since yesterday long trades have fallen 8.9% but surged 47.2% from last week. Long trades have grown 4.1% since Wednesday and eased 11.4% from last Thursday. Overall, open interest is 7.4% greater over the week and 9.7% above the monthly average.
USDJPY – USDJPY has pulled back from two-month highs recently; but the prominent rising trend channel that has defined price action since the mid-March reversal continues to hold up the medium-term trend. It is likely this contrasting market direction and low volatility that has left retail traders evenly split on their USDJPY positions. The pair’s SSI ratio stood at 1.00 with 50% of traders long and 50% short. This effectively breaks a steady trend of net negative readings that stood at -1.10 last week and -1.26 the period before. However, while positioning stood at parity, the details from the report shows that there has actually been considerable activity behind the pair. Long positions jumped 16.8% from yesterday, which in turn lead to a 15.4% increase on the week. Shorts have been less active in a 3.3% decline since yesterday and 3.9% over the week. Net open interest has risen 2.0% on the week and stands 6.7% above the monthly average. With a reading at parity, the sentiment index does not hint at direction, but the recent trend in net negative readings should set a trend until a flip is confirmed.
USDCHF – The USDCHF’s extreme SSI reading is steadily easing, suggesting the pair’s strong advance may be losing some steam. Nonetheless, speculative retail traders were still putting forth a considerable effort to fight the trend with nearly 66% of the market group holding short positions, pushing the ratio to -1.97. The modest - yet steady - decline in this gauge over the past two weeks aligns itself to underlying price action, which has seen the pair turn to congestive price action after a near 500 point rise through the end of April. Looking to the breakdown, the modest change in the ratio is further reflected through the details. Net positioning fell a meager 0.1% from last Thursday and stands only 2.4% above the monthly average. Open long positions slipped 1.6% from yesterday, though are 6.7% stronger on the week. Shorts saw similar interest, growing 2.6% from Wednesday yet falling 4.1% on the week. As a contrarian indicator, the SSI points to further USDCHF upside.
USDCAD – There are still no signs from positioning that a breakout from the long range bound USDCAD is on the horizon. The pair’s index ratio rose to 2.12 from last week’s 1.77; and on Monday, the positive reading actually grew to its greatest level since November. However, these readings are clearly not extreme for this pair (a look back to the ratio levels from this past summer and fall will give a good sense of the general level) and the sideways price action from USDCAD clearly supports the lack of conviction from speculators. The range conditions have been good for the average retailer though and the report’s breakdown reveals considerable activity. Long positions dropped 7.7% from yesterday though they are 11.5% greater than the same period a week ago. On the other side of the trade, shorts have risen 7.9% since Wednesday and are 5.7% weaker than last week. Overall, open interest is up 4.7% and has indeed been trending higher since the beginning of April. Net positioning is 2.4% above its monthly 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]>. </strong>
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