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. 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.
EURUSD - Retail traders have been selling the EURUSD ahead of next Friday’s non farm payrolls and EURUSD short positions are up by 16.5% since last week. The ratio of long to short positions in the EURUSD stands at -2.57 as nearly 72% of traders are short. Last week, the ratio was at -1.72 as 63% of open positions were short. However, the SSI is a contrarian indicator and signals more EURUSD gains.
GBPUSD - The ratio of long to short positions in the GBPUSD stands at -2.42 as nearly 71% of traders are short. Last week, the ratio was at -3.15 as 76% of open positions were short. Retail traders have been buying the GBPUSD and long positions are up by 31.6% since last week. The SSI is a contrarian indicator and signals more GBPUSD gains.
USDCHF - The ratio of long to short positions in the USDCHF stands at 4.49 as nearly 82% of traders are long. Last week, the ratio was at 3.70 as 79% of open positions were long. Retail traders have been buying the USDCHF and long positions are up by 20.7% since last week. The SSI is a contrarian indicator and signals more USDCHF losses.
USDJPY - The ratio of long to short positions in the USDJPY stands at 1.19 as nearly 54% of traders are long. Last week, the ratio was at -1.00 as 50% of open positions were short. Retail traders have been buying the USDJPY and long positions are up by 21.7% since last week. The SSI is a contrarian indicator but the ratio is too close to parity to signal any future direction in the USDJPY currency pair.
USDCAD - The ratio of long to short positions in the USDCAD stands at 3.86 as nearly 79% of traders are long. Last week, the ratio was at 5.61 as 85% of open positions were long. Retail traders have been selling the USDCAD and short positions are up by 32.4% since last week. The SSI is a contrarian indicator and signals more USDCAD losses.
For information on an FXCM Managed Fund that takes advantage of the SSI, please review our Sentiment Fund at: http://www.FXCMManagedFunds.com or call +1 646-432-2968