Crowds Buy into US Dollar Weakness, Signaling Losses Likely

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 – Our forex trading signals aggressively bought into Euro rallies, but the more recent pullback has led our strategies to take profits on previous long positions. The ratio of long to short positions in the EURUSD stands at -1.47 as nearly 59% of traders are short. Yesterday, the ratio was at -1.22 as 55% of open positions were short. In detail, long positions are 11.8% lower than yesterday and 2.2% weaker since last week. Short positions are 5.9% higher than yesterday and 3.3% stronger since last week. Open interest is 2.1% weaker than yesterday and 1.6% below its monthly average. The SSI is a contrarian indicator and signals further EURUSD gains.

 

GBPUSD –Our forex trading strategies aggressively bought into GBP/USD rallies, but the more recent downturn has led our systems to take profits on previous long positions. The ratio of long to short positions in the GBPUSD stands at -1.51 as nearly 60% of traders are short. Yesterday, the ratio was at -1.25 as 56% of open positions were short. In detail, long positions are 1.0% lower than yesterday and 3.9% weaker since last week. Short positions are 19.6% higher than yesterday and 21.2% stronger since last week. Open interest is 10.4% stronger than yesterday and 9.5% above its monthly average. The SSI is a contrarian indicator and signals further GBPUSD gains.

 

USDJPY – Our contrarian forex trading strategies have aggressively sold into USD/JPY weakness, as 3 of 6 trading systems remain short through time of writing. The ratio of long to short positions in the USDJPY stands at 2.04 as nearly 67% of traders are long. Yesterday, the ratio was at 2.19 as 69% of open positions were long. In detail, long positions are 0.8% higher than yesterday and 84.4% stronger since last week. Short positions are 8.0% higher than yesterday and 5.4% weaker since last week. Open interest is 3.1% stronger than yesterday and 19.5% above its monthly average. The SSI is a contrarian indicator and signals further USDJPY losses.

 

USDCHF – Our forex trading strategies have aggressively sold into USD/CHF weakness, as one-sided sentiment suggests further losses are likely. The ratio of long to short positions in the USDCHF stands at 2.51 as nearly 71% of traders are long. Yesterday, the ratio was at 2.24 as 69% of open positions were long. In detail, long positions are 7.1% higher than yesterday and 34.0% stronger since last week. Short positions are 4.2% lower than yesterday and 7.3% stronger since last week. Open interest is 3.6% stronger than yesterday and 17.4% above its monthly average. The SSI is a contrarian indicator and signals further USDCHF losses.

 

USDCAD – Our forex trading signals are effectively flat the USD/CAD, as strategies closed out long-standing short positions on the pair’s recent bounce. The ratio of long to short positions in the USDCAD stands at 2.14 as nearly 68% of traders are long. Yesterday, the ratio was at 1.77 as 64% of open positions were long. In detail, long positions are 6.9% higher than yesterday and 16.3% weaker since last week. Short positions are 11.6% lower than yesterday and 3.7% stronger since last week. Open interest is 0.2% stronger than yesterday and 4.5% above its monthly average. The SSI is a contrarian indicator and signals more USDCAD losses. Yet we cannot ignore the fact that crowds are shifting towards fewer long orders and more short orders—limiting our bearish bias.

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.