? EUR/USD - Speculative Short Positioning Cut by 17%
? GBP/USD - Sentiment Index Remains Extreme
? USD/JPY Speculative Positioning Unchanged
? USD/CHF - Ratio Confirms the EUR/USD Signal
? USD/CAD - Bullish Sentiment Grows More Extreme
Historical Charts of Speculative Positioning
EURUSD - Speculative positioning has remained mostly net short for the past month coinciding with 600 pips gain in the currency pair and confirming the sharp accuracy of the ratio as a contrarian indicator. Today, the ratio of longs to shorts is -2.24 as 69% of the currently open orders are short. Long orders are 7.7% lower than yesterday and 36.7% stronger since last week. Short orders are 6.3% higher than yesterday and 17.0% weaker since last week. Open interest is 1.5% stronger than yesterday and 16.5% above its monthly average. Looking ahead, current speculative positioning favors more EURUSD strength.
GBPUSD - The ratio of longs to shorts is -3.40 as 77% of the currently open orders are short. Sterling positioning flipped to net short in October and has remained negative since then coinciding with a substantial appreciation in the currency pair. Today, long orders are 20.3% higher than yesterday and 11.3% stronger since last week. Short orders are 5.3% higher than yesterday and 19.7% weaker since last week. Open interest is 8.4% stronger than yesterday and 7.4% above its monthly average. Looking ahead, the SSI signals GBPUSD strength.
USDCHF - The ratio of longs to shorts is 3.66 as 78.6% of the currently open orders are long. Long orders are 1.4% higher than yesterday and 10.6% weaker since last week. Short orders are 4.7% lower than yesterday and 8.4% stronger since last week. Open interest is 0.1% stronger than yesterday and 22.9% above its monthly average. Looking ahead, the SSI favors USDCHF weakness and confirms the EUR/USD SSI signal.
USDJPY - The USD/JPY sentiment has remained mostly net short since June 2006 but the ratio flipped to net long in November coinciding with 200 pips depreciation in the value of the USD/JPY. Today, the ratio of longs to shorts is 1.42 as 58.7% of the currently open orders are long. Long orders are 2.5% higher than yesterday and 8.5% weaker since last week. Short orders are 7.1% lower than yesterday and 3.2% stronger since last week. Open interest is 1.7% weaker than yesterday and 14.9% above its monthly average. Looking ahead, the SSI signals USDJPY weakness.
USDCAD Loonie speculative positioning has remained net long for most of the last two years but has been growing less extreme in the past month. The ratio of longs to shorts is 1.97 as 66.3% of the currently open orders are long. Long orders are 2.7% lower than yesterday and 4.0% weaker since last week. Short orders are 2.2% higher than yesterday and 37.5% weaker since last week. Open interest is 1.1% weaker than yesterday and 6.5% below 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.
