EURUSD - Speculative Positioning Signals More Euro Strength

  • EUR/USD – Speculative Positioning Signals More Euro Strength
  • GBP/USD – Short Positioning Grows More Extreme
  • USD/JPY – Speculative Sentiment Turns to Net Short
  • USD/CHF – Positioning Remained Relatively Unchanged
  • USD/CAD – Ratio of Longs to Shorts Moves Closer to Parity

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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.

[B]Historical Charts of Speculative Positioning

EURUSD –[/B] Speculative positioning in the EUR/USD flipped to net short in October and has remained mostly net short since then. This situation coincided with a sharp appreciation of the euro against the US dollar from 1.26 to 1.31 and has been confirming the accuracy of the SSI as a contrarian indicator. Today, the ratio of longs to shorts is -2.11 as 67.8% of the currently open orders are short. Long orders are 2% lower than yesterday and 11.4% weaker since last week. Short orders are 12.5% higher than yesterday and 2.9% stronger since last week. Open interest is 7.4% stronger than yesterday and 2.3% above its monthly average. Looking ahead, the SSI continues to favor EURUSD strength.

GBPUSD – Sterling speculative positioning has remained net short for most of the last five months. This week, the ratio of longs to shorts is -1.94 as 65.9% of the currently open orders are short. Long orders are 3.6% higher than yesterday and 19.7% weaker since last week. Short orders are 8.5% higher than yesterday and 9.2% weaker since last week. Open interest is 6.8% stronger than yesterday and 9.8% below its monthly average. The SSI signals further sterling strength in the days ahead.

USDCHF – The Swiss franc speculative positioning has remained net long for most of 2006 and the data for 2007 seems to be following the same path. Today, the ratio of longs to shorts is 1.32 as 56.9% of the currently open orders are long. Long orders are 1.3% higher than yesterday and 29.1% weaker since last week. Short orders are 4.8% higher than yesterday and 23.6% weaker since last week. Open interest is 2.8% stronger than yesterday and 3.0% below its monthly average. Looking ahead, the SSI signals USDCHF weakness.


USDJPY - Yen speculative positioning grew more net short during this week and the ratio of longs to shorts currently stands at -1.37 as 57.8% of the currently open orders are short. Long orders are 12.2% higher than yesterday and 48% weaker since last week. Short orders are 1.6% higher than yesterday and 28.3% weaker since last week. Open interest is 5.8% stronger than yesterday and 25.8% below its monthly average. Looking ahead, the SSI signals USDJPY strength.

USDCAD - Speculative positioning in the Canadian dollar has remained mostly net long since May 2005. This week, the ratio of longs to shorts is 1.26 as 55.7% of the currently open orders are long. Long orders are 2.6% higher than yesterday and 2% weaker since last week. Short orders are 0.9% higher than yesterday and 13.6% stronger since last week. Open interest is 1.9% stronger than yesterday and 24.6% above its monthly average. Looking ahead, the SSI signals USDCAD weakness.

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