Written by David Rodriguez, Quantitative Strategist
-EURUSD – Euro Sentiment Forecasts Further EUR Strength
-USDJPY – Japanese Yen Forecast Aggressively Bullish Against US Dollar
-GBPUSD – British Pound Outlook Unclear on Sharp Sentiment Shifts
-USDCHF – Swiss Franc Expected to Rally Further Versus US Dollar
-USDCAD – Canadian Dollar Forecast Remains Bullish Against US Dollar
The SSI sought a EURUSD rally since 1.26 and was signaling a reversal around 1.60.
Historical Charts of Speculative Forex Trading Positioning
EURUSD – Our sentiment-based forex trading signals
remain long the Euro against the US Dollar, as increasingly one-sided
crowd sentiment points to further gains. The ratio of long to short
positions in the EURUSD stands at -1.24 as nearly 55% of traders are
short. Yesterday, the ratio was at -1.29 as 56% of open positions were
short. In detail, long positions are 3.5% higher than yesterday and
16.7% stronger since last week. Short positions are 0.8% lower than
yesterday and 3.2% stronger since last week. Open interest is 1.1%
stronger than yesterday and 117.7% above its monthly average. The SSI
is a contrarian indicator and signals more EURUSD gains.
GBPUSD –A sentiment-based forex trading strategy
remains short the British Pound against the US Dollar, but increasingly
indecisive swings in positioning make our SSI-based bias unclear. The
ratio of long to short positions in the GBPUSD stands at -1.07 as
nearly 52% of traders are short. Yesterday, the ratio was at -1.49 as
60% of open positions were short. In detail, long positions are 23.3%
higher than yesterday and 25.3% stronger since last week. Short
positions are 11.7% lower than yesterday and 18.4% weaker since last
week. Forex crowds remain net-short the GBPUSD—normally a contrarian
signal to buy into further rallies. Yet the recent jump in long
positions suggests that tides are turning, and we maintain a fairly
bearish sentiment-based GBPUSD bias.
USDJPY – Forex trading crowds remain extremely net-long the US Dollar against the Japanese Yen, and our contrarian forex trading signals
are accordingly aggressively short the USDJPY. The ratio of long to
short positions in the USDJPY stands at 1.98 as nearly 66% of traders
are long. Yesterday, the ratio was at 2.05 as 67% of open positions
were long. In detail, long positions are 3.2% lower than yesterday and
32.6% stronger since last week. Short positions are 0.0% lower than
yesterday and 13.7% weaker since last week. Sentiment remains roughly
unchanged from yesterday, but the continued surge in long positions
signals that the market remains oversaturated with USDJPY bulls.
Typically this coincides with noteworthy declines in a given currency
pair.
USDCHF – Our sentiment-based forex trading strategies
remain aggressively short the US Dollar against the Swiss Franc, as
trading crowds remain extremely long the USDCHF. The ratio of long to
short positions in the USDCHF stands at 2.06 as nearly 67% of traders
are long. Yesterday, the ratio was at 2.24 as 69% of open positions
were long. In detail, long positions are 0.7% higher than yesterday and
8.5% weaker since last week. Short positions are 9.4% higher than
yesterday and 11.5% stronger since last week. The SSI is a contrarian
indicator and signals more USDCHF losses.
USDCAD – Our forex trading strategies
are modestly short the US Dollar against the Canadian dollar on
contrarian market sentiment. The ratio of long to short positions in
the USDCAD stands at 1.34 as nearly 57% of traders are long. Yesterday,
the ratio was at 1.42 as 59% of open positions were long. In detail,
long positions are 1.9% lower than yesterday and 1.1% weaker since last
week. Short positions are 4.2% higher than yesterday and 0.3% weaker
since last week. 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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