EUR/USD Short Speculative Positioning Up by 16%
GBP/USD Nearly 72% of Sterling Open Positions Are short
USD/JPY Carry Traders Unwind by 9%
USD/CHF Swiss Sentiment Index confirms Dollar Weakness
USD/CAD Long Positioning remains unchanged
**Twice a day SSI can be found on FXCMTR under Intraday Analytics
Historical Charts of Speculative Positioning
EURUSD In the last quarter of 2006, speculative positioning has remained mostly net short, which confirms the contrarian nature of the sentiment index during trending markets. Today, nearly 59 percent of our most speculative traders hold short EUR/USD positions and the ratio of shorts to longs stands at 1.4. Moreover, long orders are 0.3% lower than yesterday and 10.1% weaker since last week. Short orders are 3.1% higher than yesterday and 16.4% stronger since last week. Open interest is 1.6% stronger than yesterday and 5.1% above its monthly average. Looking ahead, the SSI signals EURUSD strength and the existing US dollar sell off is expected to continue rather than reverse.
GBPUSD - The sterling positioning ratio flipped to net short in October and has remained mostly net short since then, coinciding with a massive appreciation in the currency sterling against the US dollar. This week, the ratio of longs to shorts is -2.6 as 72% of the currently open orders are short. Long orders are 7.9% higher than yesterday and 15.2% weaker since last week. Short orders are 2.8% higher than yesterday and 9.1% stronger since last week. Open interest is 4.2% stronger than yesterday and 20.7% above its monthly average. Looking ahead, the SSI continues to signal sterling strength and dollar weakness.
USDCHF This week, nearly 76% of our most speculative traders currently hold long USD positions and the ratio of longs to shorts is 3.2. Long orders are 3.6% higher than yesterday and 1.0% weaker since last week. Short orders are 1.2% lower than yesterday and 25.8% stronger since last week. Open interest is 2.4% stronger than yesterday and 2.7% above its monthly average. Looking ahead, the SSI signals USDCHF weakness and confirms the dollar weakness against the euro.
USDJPY Yen speculative positioning has remained net short for most of 2006, coinciding with a bloody 840 pips appreciation in the value of the US dollar against the Japanese yen. This week, the ratio of longs to shorts is -1.5 as 60% of the currently open orders are short. Long orders are 0.2% lower than yesterday and 8.7% weaker since last week. Short orders are 3.2% higher than yesterday and 7.2% stronger since last week. Open interest is 1.8% stronger than yesterday and 15.8% above its monthly average. Looking ahead, the SSI signals USDJPY strength.
USDCAD - The USD/CAD ratio has remained mostly net long since May 2005, when the pair was trading at 1.26, coinciding with a 2400 pips loss in the currency pair. Today, the ratio of longs to shorts is 1.6 as 61% of the currently open orders are long. Long orders are 1.6% lower than yesterday and 9.9% stronger since last week. Short orders are 8.8% higher than yesterday and 3.5% stronger since last week. Open interest is 2.2% stronger than yesterday and 18.6% above its monthly average. Looking ahead, the SSI signals USDCAD weakness.
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. If the EURUSD ratio is -3.00 short customer orders in the EURUSD exceed long orders by a ratio of 3 to 1. A negative number indicates that traders are net short while a positive number indicates that traders are net long. 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, higher the number of short orders in a bull market 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.
