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According to David Rodriguez’s Weekly Speculative Sentiment Index report, the ratio of long to short positions in the GBP/JPY stands at -2.68 as 27% of traders are long. Yesterday the ratio was -1.97; 34% of open positions were long.
Long positions are 19.1% lower than yesterday and 20.7% below levels seen last week. Short positions are 10.0% higher than yesterday and 8.5% above levels seen last week.
We use our SSI as a contrarian indicator to price action, and the fact that the majority of traders are short gives signal that the GBP/JPY may continue higher.
The trading crowd has grown further net-short from yesterday and last week. The combination of current sentiment and recent changes gives a further bullish trading bias.
[B]Daily Volume Chart: GBP/USD[/B]
[I]Chart created using Marketscope – Prepared by Kristian Kerr[/I]
[ul]
[li]GBP/USD has come under modest pressure these past few days after recording a multi-minth high last week
[/li][li]The general decline in volume since mid-May is unsupportive of a primary trend resumption at this stage
[/li][li]A divergence in the daily OBV is also a potential negative
[/li][li]A daily close below 1.5640 on above average volume is needed to turn the outlook negative on the pound
[/li][/ul]
What currency strategist Christopher Vecchio noted on DailyFX.com last Friday, but is absolutely worth reiterating now, is the notion of risk management with respect to the EUR-crosses. It may be deemed best risk management practice for traders to reduce position size and leverage in EUR-crosses for the foreseeable future.
While the potential outcome for Greece is unknown - the absolute magnitude of the fallout around a positive or negative outcome will be enough to have a significant impact on prices over the coming week at a minimum.
Data Source: Bloomberg, Wall Street Journal. Prepared by David Rodriguez, Quantitative Strategist for DailyFX.com
What’s the Most Important Date on the Calendar?
In concrete terms, the single most significant deadline on the calendar is likely the European Central Bank bond repayment due on July, 19—assuming that the Greek Government remains solvent up until that point.
Any surprises could force substantial market moves, and traders should limit trading leverage—particularly in EUR pairs—ahead of the key dates. Caution is advised until we see a true breakthrough in negotiations.
It would be good if you added a chart to illustrate the price moves you mentioned and to highlight the key price levels you targeted. Also, since this forum thread focuses on research and analysis from DailyFX.com, you may get more feedback on your article if you create a thread of your own.
Talking Points
[ul][li]US ADP Employment figures for June come in at 237K vs 203K surveyed
[/li][li]May figures are slightly revised up to 203K from 201K
[/li][li]US Nonfarm Payrolls to be released tomorrow, July 2, at 12:30 GMT[/ul]
[/li]
The improved employment data comes in just before the June US Nonfarm Payrolls report, which is going to be released tomorrow at 12:30 GMT. The ADP data is the highest in 2015 and support’s the notion that the US economy picked up steam in Q2’15.
USD/JPY experienced a significant upward move at the release of the data with the pair trading at ¥123.10 at the time of writing. USD/JPY pair experienced session highs at the release of the data, and can further strengthen its position following the release of the NFP report tomorrow.
Below are highlights from David Rodriguez’s weekly report on the Speculative Sentiment Index (SSI):
Talking Points
[ul]
[li]US Dollar forecast turns bullish on substantial swing in forex sentiment
[/li][li]Focus turns to Euro, Sterling, and Commodity Bloc as pairs break key lows
[/li][li]See full analysis in the individual currency sections
[/li][/ul]
The US Dollar and Japanese Yen have broken sharply higher versus the Euro and British Pound. Here are the levels that quantitative strategist David Rodriguez is watching next.
EUR/USD
[ul][li]Total Buy Volume Executed, Total Sell Volume Executed, Net Volume Executed (Buy-Sell)
[/li][li]Length of bar indicates the sum of Buy and Sell volume[/ul]
[/li]
The Euro has broken major levels of volume-based support and currently trades just above noteworthy congestion near $1.0900. A larger breakdown leaves little in the way of a test of $1.08, while former support is current resistance starting at $1.10 and extending through $1.12.
_
GBP/JPY
[ul][li]Total Buy Volume Executed, Total Sell Volume Executed, Net Volume Executed (Buy-Sell)
[/li][li]Length of bar indicates the sum of Buy and Sell volume[/ul]
[/li]
Chart source: The Weekly Volume at Price Report on DailyFX.com
The Sterling has traded below important congestion versus the Yen at the ¥190 level, and support is now seen at December, 2014 highs near ¥188—likewise an important volume-based congestion zone. Our focus remains to the downside, and former support turns to resistance starting near ¥190.
Recently, China’s Shanghai Index has seen a 29% drop from mid-June highs taking it negative for the year and hurting regional sentiment. There is also risk-off sentiment due to concerns over Greece’s potential exit from the Eurozone and hard assets, such as Oil moving aggressively lower. Earlier today, the Thomson Reuters CRB Commodity Equity Index hit a 5-year low today. This risk-off environment has created a sell-off in AUD/USD.
In his article today on DailyFX.com, forex trading instructor Tyler Yell highlights how retail FX traders have aggressively and unsuccessfully fought this downtrend, as you see from the picture above. This fight has taken place as AUD/USD continued lower. Sentiment favors further downside as you can see when the client positioning is heavily leaning one direction, it often aligns with a strong trend that they’re hoping is about to reverse.
Additionally, you can see that Retail Open Long Positions have increased and are at their greatest exposure since the market peaked in spring of 2014. The changes in long and shorts show additionally that the long view is getting more aggressive. The increase in retail long positions are 23.7% above levels seen last week showing the fight is only accelerating.
You can see above that the recent break of support shown by white lines attracted a relatively large amount of volume. With an increasing amount of support or multitude of buyers, a sustained move below that 4-month support of 0.7550/0.7600 could develop.
Talking Points
[ul]
[li]EUR/USD volume spikes again
[/li][li]USD/JPY turnover continues to decline
[/li][/ul]
[B]Daily Volume Chart: EUR/USD[/B]
[I]Charts Created using Marketscope – Prepared by Kristian Kerr[/I]
[ul]
[li]EUR/USD continues to trade in a sideways to lower range
[/li][li]Well above average volume spikes at recent lows warn of a possible near-term downside capitulation
[/li][li]The contraction in daily OBV suggests a directional spike is looming
[/li][li]A close back over 1.1240 on above average volume is needed to turn the outlook positive again on the euro
[/li][/ul]
The US Dollar is at a potentially pivotal zone of support versus the Japanese Yen but eyes key resistance against the Euro. Here are the levels that quantitative strategist David Rodriguez is watching:
EUR/USD
[ul][li]Total Buy Volume Executed, Total Sell Volume Executed, Net Volume Executed (Buy-Sell)
[/li][li]Length of bar indicates the sum of Buy and Sell volume[/ul]
[/li]
The Euro continues to hold below significant volume-based resistance starting at $1.12, and continued failure leaves our focus to the downside. Near-term support is the psychologically significant $1.10 mark, while a break below targets congestion and volume-based support near $1.09.
_
USD/JPY
[ul][li]Total Buy Volume Executed, Total Sell Volume Executed, Net Volume Executed (Buy-Sell)
[/li][li]Length of bar indicates the sum of Buy and Sell volume[/ul]
[/li]
Chart source: The Weekly Volume at Price Report on DailyFX.com
The US Dollar has recently failed near notable congestion and volume-based resistance versus the Yen starting at ¥123.50, and continued failure at these levels leaves support near comparable volume levels near ¥121.50.
Continued Euro tumbles have been met with aggressive retail FX crowd buying, and our trader sample shows that traders are close to flipping to net-long the EUR/USD for the first time since March. We typically use retail positioning as a contrarian indicator to price action; crowds remain net-short and as such we might call for Euro gains.
Yet the severity with which sentiment has flipped warns that the Euro may continue lower. The pair currently trades at congestion-based support near $1.0900, and a further breakdown targets the May low near $1.08 and eventually a return towards the year-to-date low near $1.0440.
