Retail sentiment has once again shifted; and this time, speculative traders are positioning for the EURUSD’s long-term trend to remain intact. Over the past week, the Speculative Sentiment Index ratio jumped to its highest reading since last October - though this shouldn’t be too surprising considering the retail sector’s affinity for prominent technical levels. Today, the pair’s ratio stands at -1.59 with nearly 61% of the market group holding a long position.
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[li]EURUSD – Rising Long Interest Threatens A Euro Breakdown [/li][li]GBPUSD – Pound Positioning Jumps From Extreme To Parity As GBPUSD Finds 1.98 [/li][li]USDJPY – Steady USDJPY Short Interest May Portend A Break Of 108.50 [/li][li]USDCHF – USDCHF SSI Holds Net Negative After Marking A Major Channel Break [/li][li]USDCAD – Retail Sentiment In USDCAD Raises The Probability Of A Long-Awaited Break[/li]
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While the SSI is available once a week on DailyFX.com, you can receive SSI readings twice a day in DailyFX-Plus!
The SSI sought a EURUSD rally since 1.26 and was signaling a reversal around 1.60. Find our more in the DailyFX Forum.
Historical Charts of Speculative Positioning
EURUSD – Retail sentiment has once again shifted; and this time, speculative traders are positioning for the EURUSD’s long-term trend to remain intact. Over the past week, the Speculative Sentiment Index ratio jumped to its highest reading since last October - though this shouldn’t be too surprising considering the retail sector’s affinity for prominent technical levels. Today, the pair’s ratio stands at -1.59 with nearly 61% of the market group holding a long position. No doubt, such a skew arises from spot’s proximity to a very clear rising trendline from last August’s swing low as the sentiment gauge reported a similar extreme in mid-June. What’s more, major event risk in a GDP report, NFPs and next week’s FOMC rate decision is likely keeping speculators cautious before the potential jump in volatility. This is certainly what the report’s details suggest. Long positions have grown only 0.6% from yesterday but are up 10.1% on the week. From the other side of the market, shorts were relatively unchanged with a 0.3% dip from yesterday and 1.1% pickup on the week. Overall though, open interest has grown 6.6% from the same period last week and is 11.4% above the monthly average.
GBPUSD – Volatility and a lack of a dominate direction seem to be staples of GBPUSD price action. The same can certainly be said for speculative sentiment underlying the pair as well. Indeed, the sharp reversals have found a group eager to try and catch tops and bottoms. The last swing in the pound’s SSI comes after the currency made a run to 2.0150 against the dollar and quickly retreated back below 2.0000. Today, with GBPUSD spot well the four-month highs tested just a short time ago, the sentiment gauge is showing next to no bias for direction from here. The ratio stands at 1.02 – a far departure from the -2.18 reading of last week and -2.30 from the week before that. However, despite the lack of an overall reading from retail sentiment, there has certainly been a lot of trading activity over the past week. While the level of long positions was unchanged from yesterday, bulls grew by 25.4% from last Wednesday. For dollar interest, shorts were 3.1% fewer than last week and 13.3% greater than last week. Furthermore, net positioning jumped 13.3% in a week and is now 7.3% above the average.
USDJPY – The presence of 108.50 – a major level of resistance for USDJPY since January - is having a notable impact on speculative sentiment. Despite a steady appreciation in the exchange rate over the past two weeks, the retail crowd seems to be confident that technicals will hold; and the market will remain range bound for the foreseeable future. Today, the USDJPY SSI is at -1.59 with nearly 61% of retailers holding shorts. And, while this was a move to the center compared to last week’s -2.12 reading, the gauge is clearly reflecting the line in the sand retail traders have drawn. Details of the positioning report show long positions grown 0.5% from yesterday and are 14.4% stronger than last week. At the same time, shorts have also grown 0.5% from Wednesday and 5.3% over the week. The build up of interest on both sides of the market has in turn led net positioning to rise 8.8% through the same week to a level that is 8.7% above the running monthly average.
USDCHF – USDCHF has seen a steady advance since the sharp, bullish reversal from last week. In fact, earlier this week, the pair finally broke free of a two-and-a-half month mature descending trend channel that has clearly worked against the retail market’s bias. Since the reversal on the 16th of this month, in fact, the SSI has sustained a net negative reading. Today, the speculative sentiment gauge stands at -1.52 with nearly 60% of the community looking for 1.0500 to perhaps hold as resistance and USDCHF to find way back into the middle of its congestive territory. However, despite the group’s overall convictions, it has clearly been difficult for traders to fight the trend. Capitulating to the advance, longs have grown 6.0% through the past week – though they actually slipped 0.6% over the past 24 hours. At the same time, shorts were forced to liquidate with momentum culling the short-side by 18.2% through the week – while here again short interest actually rebounded 1.1% since yesterday. With one technical break down, open interest has fallen 9% but is still 2.3% above the monthly average.
USDCAD – The SSI’s contrarian readings are once again being held up to the glare of a stubbornly range-bound USDCAD. Retail positioning has again pulled dangerously close to a negative flip thanks to underlying spot’s steady advance towards resistance - generally accepted around 1.0350. The pair’s sentiment ratio stands at 1.11 following the steady decline from a 1.86 reading and 2.83 figure over the past two weeks respectively. Looking back to the last time the bias in positioning was this aggressive, a plunge to parity happened to match June’s bearish reversal. Clearly, the market is growing more bold in forecasting a similar situation as similar sentiment levels are coming with less volatility and a lower price. Details for the report show longs are 0.4% weaker since yesterday and 10.1% off last week’s levels. Longs on the other hand edged 0.1% lower in 24 hours and were a major 31.8% stronger than last week. Altogether, open interest has grown 5.7 from last week and is 6.8% above the monthly average with resistance in sight.
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.
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