Forex traders continue to buy euros, and our forex positioning data gives us forecasts to expect further EURUSD losses through the medium term. Yet we see that the number of currency traders long the EURUSD fell precipitously following the forex pair’s noteworthy breakdown earlier this month, and we have since been arguing that we may see a short term EURUSD rally before further losses.
• EURUSD – Forex Traders Forecast EURUSD Rallies Before Further Declines
• GBPUSD – British Pound Trading Forecast Further Short-term Bounce Likely
• USDJPY – Currency Traders Accurately Signal Japanese Yen Gains
• USDCHF – Forex Traders Remain Bearish, Signal Rallies
• USDCAD – Canadian Dollar Forecast to Rally Against US Dollar
While the SSI is available once a week on DailyFX.com, you can receive SSI readings twice a day in DailyFX Plus Forex Intraday Analysis
The SSI sought a EURUSD rally since 1.26 and was signaling a reversal around 1.60. Find our more in the DailyFX Forex Forum
* Negative ratio indicates net short
Historical Charts of Speculative Positioning
EURUSD – Forex traders continue to buy euros, and our forex positioning data gives us forecasts to expect further EURUSD losses through the medium term. Yet we see that the number of currency traders long the EURUSD fell precipitously following the forex pair’s noteworthy breakdown earlier this month, and we have since been arguing that we may see a short term EURUSD rally before further losses. The SSI ratio currently stands at 1.17, as only 54 percent of forex traders are currently long the euro. Typically we wait for much more extreme readings, such as SSI ratios beyond 2.0 or below -2.0 to give clear signal to go long or short the currency. This is precisely what happened prior to the EURUSD’s break below 1.50, and we have since seen the SSI ratio become much less extreme. Our Senior Strategist forecasts that the euro will rally further through short term trade; tell us what you believe in our forex forum EURUSD thread.
GBPUSD – The ratio of long to short positions in the GBPUSD stands at 1.29 as nearly 56% of traders are long. British Pound traders have shown little conviction in buying or selling, and this effectively gives us unclear forecasts of what to expect for the GBP. It is subsequently unsurprising to note that the Pound has remained Rangebound since its previous tumbles, and we predict that the GBPUSD will continue to range trade through the short-term. We will wait for more extreme readings in the GBPUSD SSI ratio before stating a firmly directional bias in the British Pound, but the currently positive ratio suggests we may expect further medium term declines in the British currency. Yet our technical specialist predicts that the GBPUSD has actually set a short-term bottom through recent forex trading.
USDJPY – Our forex positioning data shows that USDJPY traders flipped to net-long territory for the first time in over a month—accurately signaling a USDJPY breakdown. The USDJPY SSI Ratio currently stands at 1.15 as 54 percent of currency traders are long, but yesterday morning the ratio actually stood at -1.37. Long positions in the USDJPY jumped 41 percent overnight, and a continuation in buying in the USDJPY would clearly suggest that we may see further weakness in the US dollar against the Japanese Yen. Indeed, if we see the USDJPY SSI ratio creep back towards +2.0, it would be a strong signal to sell the forex pair and would forecast further losses. Discuss your own forecasts for the USDJPY in our forex forum.
USDCHF – Forex positioning in the USDCHF is broadly unchanged on the week, as the ratio of long to short currency trader positions in the forex pair currently stands at -1.51. Yesterday, the ratio was at -1.29 as 56% of open positions were short. In detail, long positions are 0.8% lower than yesterday and 24.3% weaker since last week. Short positions are 14.6% higher than yesterday and 4.0% stronger since last week. Typically when we see that forex traders are short the USDCHF and continue selling, this gives signal that the US dollar may rally against the Swiss Franc through short term trading. Keep up to date on the Swiss Franc in our currency rooms.
USDCAD – Since accurately predicting a sharp breakout in the USDCAD, our forex positioning data has since flipped its bias and continues to signal short-term losses in the US dollar against the Canadian dollar. The ratio of long to short positions in the USDCAD stands at 1.42 as nearly 59% of traders are long. Yesterday, the ratio was at 1.50 as 60% of open positions were long. In detail, long positions are 4.3% lower than yesterday and 33.4% weaker since last week. Short positions are 1.3% higher than yesterday and 13.6% stronger since last week. Typically when we see that forex traders are long the USDCAD but have stopped buying, it gives us a modestly bearish forecast for the USDCAD. A Canadian dollar calendar and forex technical updates can be seen in our USDCAD currency room.
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 any further questions about the SSI and forex positioning data? Ask the author David Rodríguez on our forex forum.
We love getting feedback on our reports. Tell us how we’re doing: E-mail the author of this report at <[email protected]>.
For information on an FXCM Managed Account that takes advantage of the SSI, please review our Sentiment Program at: http://www.fxcmmanagedaccounts.com/ or call +1 646-432-2968.