The GBPUSD’s sentiment positioning gauge has managed to hold above parity for two weeks in a row; and once again, this reading accompanies a significant development in underlying price action. Last week the strong positive flip in positioning came with a drop from GBPUSD below significant support seen at 1.96. This week, the pair is holding just above a technical floor at 1.94 that has been in place for more than a year; and yet positioning is holding net long with a 1.16 SSI reading.
• EURUSD – EURUSD Anchored To Parity As Positioning Flips
• GBPUSD – Pound Positioning Holds Net Long With 1.94 Support In Sight
• USDJPY – Growing USDJPY Shorts And Open Interest Build For Breakout
• USDCHF – USDCHF Ratio Eases Suggesting Upside Potential Fading
• USDCAD – Long USDCAD Interest At 76%, 1.00 Support May Be Tested
[I]While the SSI is available once a week on DailyFX.com, you can receive SSI readings twice a day in DailyFX-Plus!
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The SSI sought a EURUSD rally since 1.26 and was signaling a reversal around 1.60. Find our more in the DailyFX Forum.
* Negative ratio indicates net short
Historical Charts of Speculative Positioning
EURUSD – The uncertainty surrounding the EURUSD’s prevailing trend is clearly reflected in speculative positioning. After the past three week’s Speculative Sentiment Index readings reported a modest skew towards the long side, the gauge fell victim to its proximity to parity - and the doubt in direction - and flipped to -1.04. However, this is certainly not a very significant flip considering there has been no substantial bias for either side of the market since EURUSD topped out at 1.60. What’s more, the pair’s ratio has seen a number of intraday dips below parity over the past few weeks. Nonetheless, this modest negative reading follows a 1.10 figure last Thursday and 1.31 from two weeks ago. The details of the report further suggest that retailers are waiting for direction before taking a trade as positioning has changed little. Long positions slipped only 2.2% since yesterday and were 3.1% lower through the week. On the other side of the market, shorts were 2.7% higher from Wednesday and 6.3% stronger since last week. Overall, open interest has held relatively stable - rising 1.9% from last week and holding 2.8% above the monthly average. As a contrarian indicator, the SSI reading now points to gains, but with little conviction.
GBPUSD – The GBPUSD’s sentiment positioning gauge has managed to hold above parity for two weeks in a row; and once again, this reading accompanies a significant development in underlying price action. Last week the strong positive flip in positioning came with a drop from GBPUSD below significant support seen at 1.96. This week, the pair is holding just above a technical floor at 1.94 that has been in place for more than a year; and yet positioning is holding net long with a 1.16 SSI reading. From the details, it is clear that retail traders are reducing their exposure in the event of a downside break as long positions fell 6.6% since yesterday and are 9.4% lower on the week. Shorts on the other hand are 14.3% higher since Wednesday and 5.5% stronger on the week. Despite the volatility in positioning though, net open interest has actually fallen 3.1% on the week - though it is 5% above the monthly average - which is unusual considering speculative traders typically jump on range trades when major technical levels are near.
USDJPY – The pressure behind a USDJPY break out above stubborn resistance at 105.50 has grown over the past week. Technically, the pair recovered from a test of major trend channel support this past week and returned right back to its two-and-a-half month highs. With this rebound in the underlying, speculative positioning has fought the trend as traders bet that the pair’s broad range will hold. The USDJPY Speculative Sentiment Index ratio stands at -1.18 with nearly 54% of retail traders holding short position. And, while this is a modest reading, it is still on par with the most extreme negative readings in the past 10 months. Furthermore, the report’s breakdown suggests there is considerable trading activity among traders - often a sign that a major market shift is imminent. Since yesterday, long trades jumped 10.8% though bullish positioning is only 1.4% stronger than last week. Shorts on the other hand were 7.3% weaker than yesterday but a considerable 23.9% higher than a week ago. Altogether, open interest rose 14.6% over the week and is 16.4% above the monthly average. As a contrarian indicator, the SSI points to an eventually upside breakout from USDJPY.
USDCHF – The sentiment extreme behind USDCHF has cooled for the third consecutive week, suggesting upside momentum is fading and a break above 1.06 will be more difficult to achieve. The pair’s ratio stood at -1.85 with 65% of open positions short, which compares to the -1.97 reading from last week and -2.13 two Thursdays ago. This steady downtrend from the late April extreme has been relatively steady as the pair’s ongoing reversal has been slow and choppy. Looking at the details, long positions were unchanged from yesterday but 11% greater than last week’s levels. Shorts, on the other hand, were 1.1% weaker than Wednesday and 6.6% stronger than last week. Total positioning grew 9.1% from last week which has brought the monthly average for open interest to 9.9%. Overall, while the USDCHF’s SSI readings have eased over the past few weeks, positioning is still very close to an extreme; so upside potential is still quite high.
USDCAD – While the broader USDCAD range between 1.0350 and 0.9700 is in little danger of falling, the pair’s Speculative Sentiment reading may point to a looming breakout from a less significant period of congestion. The pair’s SSI reading jumped from 2.12 from last week to 3.10 on Thursday with nearly 76% of retail traders long. While a quick glance to SSI levels a year ago would suggest this week’s levels are modest, in comparison to the positioning skew over the past six months it could be considered an extreme. The breakdown reveals the complacency speculative traders are taking with playing the well-worn range between parity and 1.03. Long trades grew 3.9% since yesterday but jumped a sharp 27.5% from last week. At the same time, short positions edged 0.7% higher from Wednesday but slumped 21.4% over the week. And, to further suggest the range is mature, open interest has actually grown - 8.2% over the past week and 10.8% over the monthly average. As a contrarian indicator, the relative extreme of USDCAD SSI points to a break below parity.
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 comments or questions on this or other articles authored by John? E-mail him at <[email protected]>.
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