EURUSD - Shrinking Net Shorts May Slow Euro Gains

  • EUR/USD – Shrinking Net Shorts May Slow Euro Gains
  • GBP/USD – Short Sentiment Grows Progressively Less Extreme
  • USD/JPY – Yen Positioning Exactly Even on Trader Indecision
  • USD/CHF – Swiss Shorts Grow, Predicting USDCHF Declines
  • USD/CAD – Positioning Points to Bearish Outlook on USDCAD

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.

Historical Charts of Speculative Positioning


EURUSD – The SSI ratio grew slightly more bullish through the week, with the progressively more negative figure accurately forecasting further EURUSD gains. The ratio of longs to shorts is currently at -1.79 as 64.1% of the currently open orders are short. Long orders are 9.9% higher than yesterday, however, which suggests that the EURUSD could lose upward momentum in short-term trade. By comparison, short orders are 3.2% higher than yesterday and 2.1% weaker since last week. Open interest is 5.5% stronger than yesterday and 5.6% above its monthly average?telling us that all of this is happening on strong order volume. Looking ahead, the SSI signals EURUSD strength, but a slowdown in EURUSD shorts may limit immediate gains in upcoming trade.


GBPUSD – The GBPUSD SSI ratio has grown slowly less negative through recent trade, suggesting that the GBPUSD may be due for continued declines .The ratio of longs to shorts is -1.77 as 63.9% of the currently open orders are short. Long orders are 14.6% higher than yesterday, however, showing that shorting momentum is clearly drying up. Looking at the above chart, it is far more important to look at the slope of the ratio than the absolute number. With short orders 3.4% lower than yesterday and 7.2% weaker since last week, traders are becoming more bullish the GBPUSD. Open interest is 2.4% stronger than yesterday and 0.4% above its monthly average. Looking ahead, the SSI ratio signals GBPUSD strength, but a closer examination hints at likely declines through the short run.


USDCHF – Swissie traders have grown decisively less bullish of the USDCHF, which has coincided with currency pair declines. Given the recent range-trading environment, speculators have proven successful in predicting general direction on the margins. The ratio of longs to shorts is 1.38 as 58.0% of the currently open orders are long. Long orders are 4.5% higher than yesterday and 11.5% stronger since last week. Short orders growth trumps, as they are 5.0% higher than yesterday and 30.4% stronger since last week. Open interest is 4.7% stronger than yesterday and 33.1% above its monthly average. Looking ahead, the SSI signals USDCHF weakness.


USDJPY – Much like what we see in the USDCHF, the general direction of the USDJPY ratio has moved opposite the trend in price. The ratio of longs to shorts is almost exactly even at -1.00, as a mere 50.1% of the currently open orders are short. Long orders are 15.5% higher than yesterday and 25.6% stronger since last week. Short orders are 2.9% lower than yesterday and 6.1% weaker since last week. Open interest is 5.5% stronger than yesterday and 11.8% above its monthly average. An exactly even ratio suggests that traders are at a loss of what to expect next. A positive slope tells us otherwise, however, and we ignore the raw SSI prediction of USDJPY strength?instead calling for further weakness through the short term.


USDCAD – At the risk of sounding repetitive, a positive slope in the USDCAD ratio has accurately predicted USDCAD declines. The ratio of longs to shorts is 1.44 as 59.0% of the currently open orders are long. Long orders are even with yesterday but are 28.7% stronger on the week. Short orders have paled in comparison, gaining 1.9% on the day and 15.4% stronger since last week. Open interest is 0.8% stronger than yesterday and 26.8% above its monthly average. Looking ahead, a positive SSI ratio signals USDCAD weakness. It is worthwhile to note, however, that the slope on the ratio has moved close to neutral?suggesting that USDCAD declines may slow in upcoming trade.

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