EUR/USD Sentiment Index Grows More Net Short

           Historical Charts of Speculative Positioning

 EURUSD – Traders sentiment flipped to net short in October and has remained soft since then, coinciding with 200 pips appreciation in the currency pair. Today, the ratio of longs to shorts is -2.04 as 67.1% of the currently open orders are short. Long orders are 11.9% lower than yesterday and 9.1% weaker since last week. Short orders are 14.1% higher than yesterday and 8.1% weaker since last week. Open interest is 4.0% stronger than yesterday and 8.0% below its monthly average. The SSI tells you how the market is weighted and historically has been working as contrarian indicator. Looking ahead, the ratio signals EURUSD strength

 GBPUSD - The sterling ratio has remained mostly net short for the past two months but has grown less extreme in the last three weeks. Today, the ratio of longs to shorts is -3.95 as 79.8% of the currently open orders are short. Long orders are 20.6% higher than yesterday and 37.1% stronger since last week. Short orders are 2.0% lower than yesterday and 17.4% weaker since last week. Open interest is 1.9% stronger than yesterday and 18.6% above its monthly average. Looking ahead, the SSI signals GBPUSD strength.

USDCHF - The Swiss franc ratio continues to move according to the EUR/USD sentiment and has remained net long since October. Today, the ratio of longs to shorts is 2.90 as 74.3% of the currently open orders are long. Long orders are 2.8% higher than yesterday and 15.2% weaker since last week. Short orders are 9.1% lower than yesterday and 5.1% weaker since last week. Open interest is 0.5% weaker than yesterday and 2.0% below its monthly average. Looking ahead, the SSI signals USDCHF weakness.

USDJPY - The sentiment has remained mostly net short since June 2006 but recently has been flipping back and forth as the currency pair fluctuates within a relatively narrow range. Today, the ratio of longs to shorts is -1.46 as 59.3% of the currently open orders are short. Long orders are 13.6% lower than yesterday and 30.9% weaker since last week. Short orders are 11.2% higher than yesterday and 18.1% stronger since last week. Open interest is 0.4% weaker than yesterday and 12.4% below its monthly average. Looking ahead, the SSI signals USDJPY strength.

USDCAD - The ratio of longs to shorts is 3.14 as 75.9% of the currently open orders are long. The dollar depreciated 2300 pips against the loonie since May 2005 and the speculative sentiment has remained net long for most of the time, confirming the strength of the ratio as a contrarian indicator. Today, long orders are 4.7% lower than yesterday and 6.8% stronger since last week. Short orders are 22.6% higher than yesterday and 21.6% weaker since last week. Open interest is 0.7% stronger than yesterday and 3.5% below 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.