US Dollar Forecast Shifts on Trader Sentiment

EURUSD – Euro Forecast Unclear on Extremely Choppy Price Action
GBPUSD – British Pound Outlook Tentatively Bearish on Sharp Shift
USDCHF – Swiss Franc Expected to Rally Further Versus US Dollar
USDCAD – Canadian Dollar Forecast Remains Bullish Against US Dollar
USDJPY – Japanese Yen Forecast Unclear 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 Trading Signals

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



Historical Charts of Speculative Forex Trading Positioning


EURUSD – Ourforex trading signals recently went short the Euro against the US Dollar, as a sharp shift in sentiment gave contrarian signal to sell. The ratio of long to short positions in the EURUSD stands at -1.45 as nearly 59% of traders are short. Normally we would take a contrarian long position on the net-short ratio. Yet long positions are actually 15.6 percent stronger that last week, while shorts have fallen by 8.7 percent through the same period. The shift in crowd trading signals that further losses are likely, but price action remains extraordinarily choppy—advising caution against aggressive momentum trades.

GBPUSD –Our forex trading signals remain effectively flat the British Pound against the US Dollar, as choppy price action has left one SSI-based strategy short while another has gone long. The ratio of long to short positions in the GBPUSD stands at -1.60 as nearly 62% of traders are short. Yesterday, the ratio was at -2.12 as 68% of open positions were short. In detail, long positions are 29.2% higher than yesterday and 27.5% weaker since last week. Short positions are 2.3% lower than yesterday and 14.1% stronger since last week. The surge in long orders suggests that crowd sentiment has seen a noteworthy shift and would normally give us contrarian signal to go short, but we remain cautious on unpredictable price action.

USDJPY – Our SSI-based trading strategies are effectively flat the USDJPY, with strategies both long and short the US Dollar against the Japanese Yen. The ratio of long to short positions in the USDJPY stands at 1.01 as long and short orders are nearly neutral. Yesterday, the ratio was at 1.90 as 66% of open positions were long. In detail, long positions are 15.4% lower than yesterday and 21.8% weaker since last week. Short positions are 59.0% higher than yesterday and 34.7% stronger since last week. Open interest is 10.2% stronger than yesterday and 14.0% above its monthly average. The surge in short orders tell us that crowds are selling into USDJPY rallies—giving us contrarian signal to go in the opposite direction and buy the currency pair.

USDCHF – As with other major currency pairs, our forex trading signals are effectively flat the US Dollar against the Swiss Franc. The ratio of long to short positions in the USDCHF stands at 3.02 as nearly 75% of traders are long. Yesterday, the ratio was at 2.56 as 72% of open positions were long. In detail, long positions are 13.3% higher than yesterday and 31.4% stronger since last week. Short positions are 4.0% lower than yesterday and 14.4% weaker since last week. The extremely net-long SSI ratio favors further USDCHF losses.

USDCAD – Our forex sentiment-based trading systems remain short the US Dollar against the Canadian dollar, and extremely one-sided positioning suggests further losses are likely. The ratio of long to short positions in the USDCAD stands at 1.82 as nearly 65% of traders are long. The ratio remains unchanged from yesterday when it registered at 1.82. In detail, long positions are 0.4% higher than yesterday and 2.7% weaker since last week. Short positions are 0.2% higher than yesterday and 20.5% stronger since last week. Open interest is 0.3% stronger than yesterday and 2.0% above its monthly average. The SSI is a contrarian indicator and signals more USDCAD losses.

How do we 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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[B]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]>.[/B]