Below is an excerpt from Christopher Vecchio's weekly update on the Speculative Sentiment Index (SSI).
The retail crowd’s shift into heavier net-long US Dollar positions last week coincided with the start of the next leg lower across the USD-complex.
Weekly Summary of Forex Trader Sentiment and Changes in Positioning
With these small speculators continuing to add to net-long US Dollar positions amid weakness, we still prefer to fade the crowd’s recent positioning shifts. As such, further declines in various USD-pairs in the days ahead seems like the likely outcome.
The ratio of long to short positions in the USDJPY stands at 2.79 as 74% of traders are long. Yesterday the ratio was 2.63; 72% of open positions were long. Long positions are 3.2% higher than yesterday and 10.5% above levels seen last week. Short positions are 2.9% lower than yesterday and 9.7% below levels seen last week.
We use our SSI as a contrarian indicator to price action, and the fact that the majority of traders are long gives signal that the USDJPY may continue lower. The trading crowd has grown further net-long from yesterday and last week. The combination of current sentiment and recent changes gives a further bearish trading bias.