special reports

SSI - GBPUSD Short Positioning Grows Less Extreme

Thursday, 16 November 2006 14:42:17 GMT  |  Antonio Sousa, Currency Analyst

-EUR/USD – Sentiment Index Remains Net Short
-GBP/USD – Short Positioning Grows Less Extreme
-USD/CAD – Positions Outstanding Fall by 19 Percent
-USD/CHF – Ratio Confirms the EUR/USD Sentiment
-USD/JPY – Net Positioning Closer to Parity

Twice a day SSI can be found on FXCMTR under Intraday Analytics

  







EURUSD - The ratio of long to short positions is -2.00 as 66.7% of the currently open orders are short. Speculative positioning has remained mostly net short for the past four weeks, confirming the accuracy of the ratio as a contrarian indicator, and  coinciding with 220 pips gain in the currency pair. Today, long orders are 15.6% higher than yesterday and 45.7% stronger since last week. Short orders are 2.5% lower than yesterday and 2.7% weaker since last week. Open interest is 2.8% stronger than yesterday and 7.1% above its monthly average which often means that traders are increasing their speculative bets and are more likely to have margin calls. Looking ahead, the SSI signals EURUSD strength.




GBPUSD - The ratio of longs to shorts is -1.99 as 66.4% of the currently open orders are short. The sterling ratio flipped to net short on the middle of October but has grown less extreme in the last two weeks. Today, long orders are 18.1% higher than yesterday and 102% stronger since last week. Short orders are 5.2% higher than yesterday and 28.9% weaker since last week. Open interest is 9.2% stronger than yesterday and 0.4% below its monthly average. Looking ahead, the SSI signals GBPUSD strength.




USDCHF - The ratio of longs to shorts is 2.94 as 74.7% of the currently open orders are long. Long orders are 1.5% higher than yesterday and 15.4% weaker since last week. Short orders are 5.0% higher than yesterday and 22.3% stronger since last week. Open interest is 2.4% stronger than yesterday and 3.2% above its monthly average. Looking ahead, the SSI signals USDCHF weakness and confirms EURUSD strength.




USDJPY - The ratio of longs to shorts is -1.43 as 58.9% of the currently open orders are short. Long orders are 5.9% higher than yesterday and 2.5% weaker since last week. Short orders are 4% lower than yesterday and 13.3% stronger since last week. Open interest is 0.1% weaker than yesterday and 0.1% above its monthly average. The USD/JPY sentiment has remained mostly net short since June 2006 coinciding with a 795 pips appreciation in the currency pair. Looking ahead, the SSI signals USDJPY strength.




USDCAD - The ratio of longs to shorts is 1.48 as 59.7% of the currently open orders are long. Long orders are 0.9% higher than yesterday and 12.9% weaker since last week. Short orders are 7.4% lower than yesterday and 116.8% stronger since last week. Open interest is 2.6% weaker than yesterday and 9.5% above its monthly average. Speculative positioning has remained net long for most of the last two years but has been growing less extreme in the past two weeks. Looking ahead, the SSI continues to signal 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.

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