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Euro Forecast Bullish As Crowd Sells Into Post-ECB Rally

By , Quantitative Strategist
07 May 2009 14:29 GMT

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

2009.05.07_ssi_1


Historical Charts of Speculative Forex Trading Positioning

2009.05.07_ssi_eur

EURUSD – Our forex trading signals have bought into the Euro’s post-ECB rallies, as aggressive forex crowd selling gives contrarian signs to go long the Euro/US Dollar. The ratio of long to short positions in the EURUSD stands at -1.45 as nearly 59% of traders are short. Yesterday, the ratio was at -1.24 as 55% of open positions were short. In detail, long positions are 10.2% lower than yesterday and 6.3% weaker since last week. Short positions are 4.9% higher than yesterday and 5.4% stronger since last week. Open interest is 1.8% weaker than yesterday and 0.8% above its monthly average. The SSI is a contrarian indicator and signals more EURUSD gains.

 

2009.05.07_ssi_gbp

GBPUSD –Our forex trading strategies have aggressively bought into British Pound/US Dollar strength, as one-sided crowd sentiment suggests further gains are likely. The ratio of long to short positions in the GBPUSD stands at -1.39 as nearly 58% of traders are short. Yesterday, the ratio was at -1.59 as 61% of open positions were short. In detail, long positions are 15.2% higher than yesterday and 23.3% stronger since last week. Short positions are 0.4% higher than yesterday and 7.1% stronger since last week. Open interest is 6.1% stronger than yesterday and 38.6% above its monthly average. The SSI is a contrarian indicator and signals more GBPUSD gains.

 

2009.05.07_ssi_jpy

USDJPY – Our contrarian forex trading strategies are currently flat the US Dollar against the Japanese Yen, as indecisive traders give little indication on what to expect out of the volatile currency pair.  The ratio of long to short positions in the USDJPY stands at -1.08 as nearly 52% of traders are short. Yesterday, the ratio was at -1.23 as 55% of open positions were short. In detail, long positions are 1.7% higher than yesterday and 1.1% weaker since last week. Short positions are 10.6% lower than yesterday and 12.3% weaker since last week. Open interest is 5.1% weaker than yesterday and 5.5% above its monthly average. The SSI is a contrarian indicator and signals more USDJPY gains.

 

2009.05.07_ssi_chf

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 1.94 as nearly 66% of traders are long. Yesterday, the ratio was at 1.67 as 63% of open positions were long. In detail, long positions are 5.2% lower than yesterday and 13.6% stronger since last week. Short positions are 18.7% lower than yesterday and 23.1% weaker since last week. Open interest is 10.2% weaker than yesterday and 29.5% above its monthly average. The SSI is a contrarian indicator and signals more USDCHF losses.

 

2009.05.07_ssi_cad

USDCAD – Our forex trading signals remain heavily short the US Dollar/Canadian Dollar pair, as extremely one-sided sentiment points to potential for further losses. The ratio of long to short positions in the USDCAD stands at 2.63 as nearly 72% of traders are long. Yesterday, the ratio was at 3.26 as 77% of open positions were long. In detail, long positions are 10.0% lower than yesterday and 22.4% stronger since last week. Short positions are 11.7% higher than yesterday and 22.4% stronger since last week. Open interest is 4.9% weaker than yesterday and 31.0% above its monthly average. The SSI is a contrarian indicator and signals more USDCAD losses.

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.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.
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07 May 2009 14:29 GMT