Speculative Positioning Signals that Rebound in EUR/USD will Probably be Capped by 1.2750

  As of June 15, 2006 (5:00 EST, 10:00 GMT)

The ratio of longs to shorts in the EUR/USD is +1.63 which is within the extreme +/- 3 range.  The EUR/USD ratio has remained net long for the entire week, coinciding perfectly with the additional 235 pip sell-off that we have seen in the currency pair.  As we noted last week, losses would probably remain limited since the USD/CHF ratio failed to confirm the EUR/USD signal.  The currency pair bottomed right at the psychologically and technically important 1.25 level, but with the ratio still net long, gains too will probably be capped below 1.2750-75. Total positioning has fallen by 15.2 percent over the past week with both bulls and bears cutting exposures by 14.6 and 16.1 percent respectively. 

The ratio of longs to shorts in the GBP/USD is +1.04, which is within the extreme +/- 3 range.  Like the EUR/USD the ratio has also remained net long on a week to week basis.  Although the ratio did flip back and forth during the week, as usual, the flips proved to be nothing more than mere noise as the GBP/USD slid over 200 pips. Since then prices have retraced a bit as the ratio lingers around parity.  At this point, the ratio indicates that the next direction in the GBP/USD is not clear while the recent flip flopping suggests that we could see a move towards range trading.  Total positions have fallen by 17.5 percent over the past week with both bulls and bears cutting exposures by 23.8 and 9.6 percent respectively. 

The ratio of longs to shorts in USD/CHF is +1.80, which is within the extreme +/- 3 range.  The ratio has remained mostly net long for over 2 months now as the outlook for higherUS interest rates keep long dollar trades particularly attractive.  By itself, the USD/CHF ratio has been fairly inaccurate as a contrarian indicator since it has remained net long despite the rally in the US dollar.  However as a confirmation indicator for the EUR/USD it has proven its worth.  Total positioning has increased by 6.2 percent over the past week with long positions rising by 8.9 percent and short positions increasing by 1.6 percent.

The ratio of longs to shorts in the USD/JPY is -1.30, which is within the extreme +/- 3 range.  The ratio has remained net short for the entire week, coinciding perfectly with the contrarian 175 pip rally in the currency pair.  Total positioning has increased modestly by 2.2 percent with long positions rising by 3.1 percent and short positions increasing by 1.6 percent.  The USD/JPY ratio continues to signal more gains for the currency pair as the interest rate environment could very well support that.