Historical Charts of Speculative Positioning
EURUSD – In the last winds of 2006, speculative positioning remained mostly net short but 2007 started with EUR/USD positioning near parity. This week, the ratio of longs to shorts is 1.04 as 51% of the currently open orders are long. Many traders squared positions during the holiday season as shown by open interest which is 5.2% weaker than yesterday and 4.9% below its monthly average. Long orders are 2.8% lower than yesterday and 9.9% weaker since last week. Short orders are 7.7% lower than yesterday and 15.9% weaker since last week. Looking ahead, the SSI signals EURUSD weakness.
GBPUSD - The ratio of longs to shorts remains extreme at negative 3.07 as 75.4% of the currently open orders are short. Long orders are 12.7% lower than yesterday and 17.8% weaker since last week. Short orders are 0.2% higher than yesterday and 8.5% stronger since last week. Open interest is 3.3% weaker than yesterday and 6.8% above its monthly average. The sterling positioning ratio flipped to net short in October and has remained mostly net short since then. The SSI continues to signal GBPUSD strength.
USDCHF – The Swiss franc speculative positioning has remained net long for most of 2006 and today the ratio of longs to shorts is 2.04 as 67.1% of the currently open orders are long. Speculative long orders are 1.4% lower than yesterday and 14.5% weaker since last week. Short orders are 6.8% lower than yesterday and 15.1% stronger since last week. Open interest is 3.2% weaker than yesterday and 4.8% below its monthly average. Looking ahead, the SSI signals USDCHF weakness.USDJPY – This week the ratio of long to short speculative traders is negative 1.48 as 59.7% of the currently open orders are short. Yen speculative positioning has remained net short for most of 2006, coinciding with a massive 1000 pips appreciation in the USDJPY. Today, long orders are 2.5% higher than yesterday and 4.9% stronger since last week. Short orders are 5.2% higher than yesterday and 13.2% stronger since last week. Open interest is 4.1% stronger than yesterday and 11.8% above its monthly average. Looking ahead, the SSI signals USDJPY strength.
USDCAD - The speculative positioning ratio has remained mostly net long since May 2005 and today is no exception. Today, the ratio of longs to shorts is 1.36 as 57.6% of the currently open orders are long. However, long orders are 1.8% lower than yesterday and 5.5% stronger since last week. Short orders are 0.1% higher than yesterday and 6.7% weaker since last week. Open interest is 1.0% weaker than yesterday and 2.2% 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.