Euro Forecast Unclear on Indecisive Forex Positioning

EURUSD – Our forex positioning-based forecast for the Euro/US Dollar is currently unclear, as trading crowds are very near neutral in their bias towards the currency pair. The ratio of long to short positions in the EUR/USD stands at a modest -1.06 as only 51% of traders are short. Yesterday, the ratio was at 1.17 as 54% of open positions were long. The marginal shift comes from the fact that short positions are 22.9 percent higher than yesterday, but overall sentiment is roughly unchanged on the week. The SSI is a contrarian indicator and the net-short trader bias signals gains are likely, but we have little confidence in this forecast. Our sentiment-based forex trading signals are accordingly flat the Euro/US dollar through current price action. 

USDJPY – Our sentiment-based forex trading strategies continue to aggressively sell the US Dollar/Japanese Yen currency pair, as a shift in forex positioning signals further USD/JPY losses are likely. Yet a recent surge in short positions suggests that the very short-term could see the USDJPY retrace some of its recent losses. The ratio of long to short positions in the USDJPY stands at 1.12 as nearly 53% of traders are long. Yesterday, the ratio was at 1.70 as 63% of open positions were long. In detail, long positions are 4.0% higher than yesterday and 12.9% stronger since last week. Short positions are a massive 58.6% higher than yesterday and 24.9% stronger since last week. The SSI is a contrarian indicator and signals more USDJPY losses, but the recent jump in short interest very much dampens the strength of our bearish forecast.

GBPUSD – Our forex trading strategies are currently net-short the British Pound against the US Dollar, as a shift in forex trading sentiment signals that further short-term losses are likely. Forex trading crowds remain net-long the GBP/USD, as 55 percent of traders in our sample are currently long. Said positioning is roughly unchanged from yesterday, when 56 percent of traders were long. In detail, long positions are 14.9% higher than yesterday and 32.1% stronger since last week. Short positions are 17.7% higher than yesterday and 16.1% stronger since last week. All else remaining equal, we believe that the aggressive growth in forex trading crowd long positions suggests that the GBP/USD may continue to weaken through the near term. Discuss the British Pound with other traders in our forex forum.

USDCHF – Forex positioning gives little bias on the US Dollar against the Swiss Franc, as trading crowds remain exactly neutral the currency pair. Our SSI ratio currently stands at 1.00, as longs are almost exactly even with short positions. Yesterday, the ratio was at -1.01 as 50% of open positions were short. In detail, long positions are 24.3% higher than yesterday and 10.2% weaker since last week. Short positions are 22.4% higher than yesterday and 15.9% stronger since last week. The SSI gives subsequently little bias on the pair. All the same, our forex trading signals remain net-short the USD/CHF through recent trade.

USDCAD – Forex positioning gives relatively little bias on the Canadian dollar, as open interest is substantially below its longer-term average. The ratio of long to short positions in the USDCAD stands at 1.07 as nearly 52% of traders are long. Yesterday, the ratio was at 1.28 as 56% of open positions were long. In detail, long positions are 3.0% lower than yesterday and 22.8% stronger since last week. Short positions are 16.1% higher than yesterday and 2.3% stronger since last week. Open interest is 5.3% stronger than yesterday but 41.5% below its monthly average. 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.