Euro SSI Points To New Highs, But A Flip Is Still A Threat

Hitting fresh record highs seems to be a weekly ritual for EURUSD; and retail speculative traders tirelessly try to fight the trend. Positioning in the Sentiment Speculative Index moved closer to parity over the past week as the pair made a move to a new all-time high just short of 1.6000, triggering stops and encouraging longs to take advantage of breakout momentum. The SSI ratio stands at -1.48 compared to the -1.78 reading from last week and -2.01 from yesterday. Looking at the report’s breakdown, we can see the euro’s advance has led to notable shift in positioning.

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  • EURUSD – Euro SSI Points To New Highs, But A Flip Is Still A Threat
  • GBPUSD – Pound Positioning Vindicated In Upside Channel Breakout
  • USDJPY – Yen Traders Take On Shorts As USDJPY Shows Upside Potential
  • USDCHF – Net Short Positioning Builds, Boosting Upside Potential
  • USDCAD – Broad Range Settles USDCAD Positioning[/B][/I]

While the SSI is available once a week on DailyFX.com, you can receive SSI readings twice a day in DailyFX-Plus!
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.


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EURUSD[/B] – Hitting fresh record highs seems to be a weekly ritual for EURUSD; and retail speculative traders tirelessly try to fight the trend. Positioning in the Sentiment Speculative Index moved closer to parity over the past week as the pair made a move to a new all-time high just short of 1.6000, triggering stops and encouraging longs to take advantage of breakout momentum. The SSI ratio stands at -1.48 compared to the -1.78 reading from last week and -2.01 from yesterday. Looking at the report’s breakdown, we can see the euro’s advance has led to notable shift in positioning. Long positions jumped 15% from Wednesday yet are only 4% higher than last week. Shorts on the other hand are 15.4% weaker than yesterday and 15.8% weaker than last weak. Overall, open interest grew 4.9% on the week and is 11.1% above its monthly average. The consistently negative EURUSD SSI reading points to a sustained move above 1.60, but the general trend in the net reading suggests a flip and reversal from EURUSD could come down the line.
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GBPUSD[/B] – The consistency in the GBPUSD’s net negative reading proved prophetic as a contrarian sign. After weeks of a relatively tight, downward sloping trend channel, the pair finally put in for an upside breakout that moved against the retail crowd. With the push towards 2.0, the pair’s SSI reading has actually grown more net short to a -1.37 read from -1.26 reported last week. The details reveal that few retailers are joining the upside, while a greater number are trying to fade it. Long positions grew only 2.3% from yesterday but are 20.7% higher on the week. Shorts are up 19.7% from Wednesday and are 21% stronger than last week. Net open interest was 10.8% greater on the week and 12.2% above the monthly average. The short-term shift in positioning and net negative reading points to further GBPUSD gains, but ratio readings so close to parity will reduce the effectiveness of the gauge’s medium-term outlook.
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USDJPY[/B] – Last week’s USDJPY SSI flip back into positive territory turned out to be a temporary reversal. Since last Thursday’s net long reading, speculative sentiment has settled back into negative territory. Today, the index ratio stood at -1.23 with 55% of traders short. This compares to the 1.11 reading from last week and the -1.11 figure from the Thursday before that. From the details, longs were little changed from yesterday - up 1.5% - but had actually plummeted 51% from a week ago. On the other side of the market, shorts have jumped 33.7% from Wednesday and are up a staggering 70.6% from last week. With these considerable shifts in positioning however, open interest was only 12.6% greater than last week and 1.7% above the monthly average. The net short reading, though still modest, may point to a genuine trend change for USDJPY.
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USDCHF[/B] – The USDCHF worked on extending its month long consolidation pattern last week. However, despite the congestion, speculative retail positioning is certainly building up pressure behind a major trend reversal. The pair’s SSI reading stood at -1.89 today, its most extreme net negative reading since October of 2006. The ratio seemed to be steadily building into negative territory, with last week’s reading at -1.65 and the one before that coming in at -1.52. The divide in market positioning reveals little interest in fighting the trend and a considerable backing for a sustained USDCHF bear rung. Longs were only 0.1% greater than yesterday but a substantial 23.4% fewer than last week. Short interest however jumped 12.1% from Wednesday and is 43.1% stronger than last week. Total open interest is only 1.2% greater than last week and 18% above the monthly average. The net negative reading is still below historical extremes, but the steady build and congestion in the underlying may indicate a bottom is being formed.
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USDCAD[/B] – USDCAD positioning continues to hold off from its first negative sentiment flip since November of 2006. The pair’s Speculative Sentiment Index ratio jumped to 1.98 today with 66% of retail traders long. The details of the report reveal that longs grew a modest 6.1% since yesterday and 12.1% from last Thursday. Shorts on the other hand grew 7.5% from Wednesday and are 3.7% weaker than levels last week. Net open interest was only 5.2% higher than last week and is 5.3% above its monthly average. The steady, positive reading points to further downside potential from USDCAD; however, these historically modest sentiment numbers are certainly being depressed by the underlying’s broad range and suggest the market is determining whether this is a long-term bottom or extended congestion period before the next leg down.

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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