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FXCM SSI - Sentiment Index Signals More Pound and Euro Losses

By Antonio Sousa, Chief Strategist
12 October 2006 16:20 GMT

10.12.06.1

10.12.06.2

EURUSD - The ratio of longs to shorts is 3.14 as 76% of the currently open orders are long. Speculative positions have remained mostly net long for the past month coinciding with a 300 pips drop in the currency pair. Long orders are 2.0% higher than yesterday and 20.0% stronger since last week. Short orders are 9.5% higher than yesterday and 10.0% weaker since last week. Open interest is 3.7% stronger than yesterday and 9.6% above its monthly average. Looking ahead, with dollar bears continuing to add to their losing positions more EURUSD weakness is likely.


10.12.06.3

GBPUSD - The ratio of longs to shorts is 1.84 as 65% of the currently open orders are long. The ratio flipped to net long on Monday ahead of a massive 200 pips plunge in the EUR/USD. Long orders are 11.6% higher than yesterday and 51.5% stronger since last week. Short orders are 5.3% higher than yesterday and 28.8% weaker since last week. Open interest is 9.3% stronger than yesterday and 6.5% above its monthly average. Looking ahead, the SSI signals GBPUSD weakness.


10.05.06.4

USDCHF - The ratio of longs to shorts is -1.94 as 66% of the currently open orders are short. Long orders are 11.5% higher than yesterday and 11.9% weaker since last week. Short orders are 3.8% higher than yesterday and 54.4% stronger since last week. Open interest is 6.3% stronger than yesterday and 18.9% above its monthly average. Looking ahead, the SSI favors USD/CHF carry trades and confirms EUR/USD weakness.


10.12.06.5

USDJPY - The ratio of longs to shorts is -6.04 as 86% of the currently open orders are short. Open orders are up by 38 percent and the ratio is net short  which makes an explosive cocktail since many of the traders who entered the markets are leaving their stop losses just above the current price action. Long orders are 4.9% higher than yesterday and 26.0% weaker since last week. Short orders are 1.4% lower than yesterday and 61.1% stronger since last week. Open interest is 0.5% weaker than yesterday and 27.9% above its monthly average. Looking ahead, the SSI signals USDJPY strength.


10.12.06.6

USDCAD - The ratio of longs to shorts is 1.40 as 58% of the currently open orders are long. Long orders are 3.6% higher than yesterday and 10.6% weaker since last week. Short orders are 2.1% higher than yesterday and 20.9% stronger since last week. Open interest is 3.0% stronger than yesterday and 2.8% 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.

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12 October 2006 16:20 GMT