Most forex traders use fundamental and technical analysis to try to predict the direction of the forex markets, and to time their entries and exits. In the futures market, traders have access to a third tool to help them accomplish these goals, which provides insight to what the other traders are thinking—sentiment analysis in the form of positioning data.
Because the futures market is centralized in exchanges, traders can see where other traders are positioned in reports such as the CFTC’s weekly Commitments of Traders report. Unlike the futures markets, the forex market is largely conducted “over the counter,” meaning that it is decentralized.This makes it difficult to find comprehensive volume or open interest data. But DailyFX has taken measures in an attempt to fill this gap by offering clients access to FXCM Inc.’s (NYSE: FXCM) proprietary open-interest and positioning data.The Speculative Sentiment Index (SSI) provides live FXCM clients a virtually unparalleled view of forex-market sentiment. What’s more, the SSI is updated twice a day with current information on DailyFX PLUS. This is in stark contrast to the weekly Commitments of Traders reports, which only shows data that has been delayed for three days. DailyFX PLUS is a free signals-and-education website exclusively available to live FXCM clients.
The SSI reports provide information on how many FXCM accounts are short or long in each of 8 currency pairs.By following the SSI’s twice-daily updates, you can see how many traders are entering or exiting the markets. Many FXCM clients use the SSI as a contrarian indicator, and we believe that the SSI has been a reliable forecasting tool in the forex market in the past. Below is the SSI’s success story for the past week, focusing on EUR/USD, GBP/ USD, and USD/CHF. It should be noted, however, that past performance does not guarantee future results.
The SSI Diary of Selected Dollar Pairs| April 29, 2011
In the past week, the majority of FXCM accounts have been short the pair, resulting in an SSI signal for further gains in the euro/dollar.
- Price Movement Result: EUR/USD has continually gained all week, posting 5straight days of gains, totaling nearly 300 pips. A trader would have been successful in this instance had they followed the SSI signal and bought the euro*.
Similar to the euro traders, the majority of the FXCM Pound crowd was in a short position for the pound/dollar, expecting it to fall. The Speculative Sentiment Index suggested going against the crowd and being long the pair all week.
- Price Movement Result: The pair surged throughout the week, breaking above the resistance at 1.6600 on Wednesday, April 27. Following the SSI signals would have resulted in a successful trade this week,* but now it may be too late.
There has been a sustained fall in the value of the dollar against the Swiss Franc and many traders have been net long the pair for almost a year. Presumably, the thought process might have been that this can’t be sustained forever, that the USD/CHF had reached a bottom and prices would turn around soon. However, the SSI has generally been forecasting more USD/CHF losses, including a sustained losing signal in the past week.
- Price Movement Result: The Swissie has fallen for 8 consecutive days. The pair was below 0.8700 on April 29th, after establishing an all-time low at 0.8643 the morning of April 28th . The SSI signal was correct in this instance, with the USD/CHF having fallen nearly 200 pips this week.*
*Past performance is not indicative of future results.
EUR/USD, GBP/USD, USD/CHF Rates, SSIs, Long/Short Amounts
April 21, 2011– April 29, 2011
Given that FXCM is one of the world’s largest non-bank forex brokers, the SSI boasts access to one of the largest and may be one of the most representative samples of the broad retail forex market available. The SSI derives information from over 130,000 active accounts† in over 200 countries. The reports are available free twice a day on DailyFX+for all FXCMlive-account holders. The public can also view a weekly SSI report on Thursdays on DailyFX.com.
† An Active Account represents an account that has traded at least once in the previous 12 months. This information was recorded in March 2011.
About FXCM Inc.
FXCM Inc.(NYSE: FXCM) is a global online provider of foreign exchange (forex) trading and related services to retail and institutional customers worldwide.
At the heart of FXCM's client offering is No Dealing Desk forex trading. Clients benefit from FXCM’s large network of forex liquidity providers enabling FXCM to offer competitive spreads on major currency pairs. Clients have the advantage of mobile trading, one-click order execution, and trading from real-time charts. FXCM's UK subsidiary, Forex Capital Markets Limited, also offers CFD products with no re-quote trading and allows clients to trade forex, oil, gold, silver, and stock indices on one platform. In addition, FXCM offers educational courses on forex trading and provides free news and market research through DailyFX.com.
Trading foreign exchange on margin carries a high level of risk and may not be suitable for all investors. DailyFX has taken reasonable measures to ensure the accuracy of the content herein, however, does not guarantee its accuracy, and will not accept liability for any loss or damage that may arise directly or indirectly from the content and your use of the charting indicator and EAs herein. In addition, the content herein, including, but not limited to, the charting indicators and EAs is provided as general market commentary and does not constitute investment advice.
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All references to "FXCM" refer to FXCM, Inc. and its consolidated subsidiaries.
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