US Dollar Forecast Unclear on Drop in Forex Trading Activity

While the SSI is available once a week on DailyFX.com, you can receive SSI readings twice a day in DailyFX Plus Forex Intraday Trading Signals

The SSI sought a EURUSD rally since 1.26 and was signaling a reversal around 1.60.  Find our more in the DailyFX Forex Forum 

Historical Charts of Speculative Forex Trading Positioning

EURUSD – The ratio of long to short positions in the EURUSD stands at -1.06 as nearly 51% of traders are short. Yesterday, the ratio was at -1.08 as 52% of open positions were short. In detail, long positions are 19.2% higher than yesterday and 17.2% stronger since last week. Short positions are 16.7% higher than yesterday and 15.7% stronger since last week. Open interest is 17.9% stronger than yesterday and 22.1% below its monthly average. The SSI is a contrarian indicator, but nearly-neutral positioning gives us little bias through this holiday-shortened week of trade. Regardless, our SSI-based forex trading signals remain short the Euro/US Dollar via a sentiment-based trading strategy.

USDJPY – The ratio of long to short positions in the USDJPY stands at 1.22 as nearly 55% of traders are long. Yesterday, the ratio was at 1.36 as 58% of open positions were long. In detail, long positions are 2.5% higher than yesterday and 21.6% weaker since last week. Short positions are 14.7% higher than yesterday and 42.8% weaker since last week. Open interest is 7.6% stronger than yesterday and 46.8% below its monthly average. The SSI is a contrarian indicator and signals more USDJPY losses. As it stands, our USD/JPY trading strategies are currently flat after aggressively selling through previous price action.

GBPUSD –The ratio of long to short positions in the GBPUSD stands at 1.64 as nearly 62% of traders are long. Yesterday, the ratio was at 1.35 as 57% of open positions were long. In detail, long positions are 18.0% higher than yesterday and 25.7% stronger since last week. Short positions are 2.5% lower than yesterday and 49.9% weaker since last week. Open interest is 9.3% stronger than yesterday and 44.7% below its monthly average. The SSI is a contrarian indicator and signals more GBPUSD losses. In fact, three of our forex trading strategies remain short the British Pound against the US Dollar. Discuss the British Pound with other traders in our forex forum.

USDCHF – The ratio of long to short positions in the USDCHF stands at 1.10 as nearly 52% of traders are long. Yesterday, the ratio was at 1.10 as 52% of open positions were long. In detail, long positions are 41.9% higher than yesterday and 16.7% stronger since last week. Short positions are 40.9% higher than yesterday and 54.6% weaker since last week. Open interest is 41.4% stronger than yesterday and 48.0% below its monthly average. The SSI is a contrarian indicator and signals more USDCHF losses. Our forex trading signals previously went short the USD/CHF for sizeable profits, but the strategies now hold a weaker bias.

USDCAD – The ratio of long to short positions in the USDCAD stands at 1.10 as nearly 52% of traders are long. Yesterday, the ratio was at 1.36 as 58% of open positions were long. In detail, long positions are 7.9% lower than yesterday and 60.2% weaker since last week. Short positions are 14.4% higher than yesterday and 32.7% weaker since last week. Open interest is 1.6% stronger than yesterday and 62.3% below its monthly average. The SSI is a contrarian indicator and gives a marginally USDCAD-bearish bias, but the sharp drop in open interest gives us little confidence in these forecasts. Tell us and other traders what you think in our forex forum.

How do we 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.

Have any further questions about the SSI and forex positioning data? Ask the author David Rodríguez on our forex forum.

We love getting feedback on our reports. Tell us how we’re doing: E-mail the author of this report at drodriguez@dailyfx.com.

For information on an FXCM Managed Account that takes advantage of the SSI, please review our Sentiment Program at:  http://www.fxcmmanagedaccounts.com/ or call +1 646-432-2968.