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. 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.
Historical Charts of Speculative Positioning
EURUSD – Our sample of speculative traders has remained net short since October coinciding with a substantial appreciation in the currency pair and confirming the accuracy of the ratio as a contrarian indicator. This week, the ratio of longs to shorts is -1.57 as 61.2% of the currently open orders are short. Long orders are 8.6% higher than yesterday and 10.3% weaker since last week. Short orders are 3.0% higher than yesterday and 4.7% weaker since last week. Open interest is 5.1% stronger than yesterday and 2.4% below its monthly average. In the week ahead, the ratio continues to favor more euro strength against the US dollar.
GBPUSD - The ratio of longs to shorts is -1.31 as 56.7% of the currently open orders are short. Long orders are 2.2% higher than yesterday and 19.6% stronger since last week. Short orders are 3% higher than yesterday and 18.8% stronger since last week. Open interest is 2.6% stronger than yesterday and 10.3% above its monthly average. The sterling positioning ratio flipped to net short in October and has remained mostly net short since then. Looking ahead, the SSI signals GBPUSD strength.USDCHF - The ratio of longs to shorts in the Swiss franc is 2.07 as 67.4% of the currently open orders are long. Long orders are 1.1% higher than yesterday and 7.9% weaker since last week. Short orders are 4.0% higher than yesterday and 5.2% weaker since last week. Open interest is 2.1% stronger than yesterday and 2.6% above its monthly average. Looking ahead, the SSI signals USDCHF weakness.USDJPY – After being net long for a couple of sessions the ratio of longs to shorts flipped back to net short and currently stands at negative 1.07 as 51.6% of the currently open orders are short. Long orders are 7.1% higher than yesterday and 11.9% weaker since last week. Short orders are 3.0% higher than yesterday and 13.7% weaker since last week. Open interest is 5% stronger than yesterday and 11.8% below its monthly average. Looking ahead, the SSI signals USDJPY strength.
USDCAD – This week the ratio of longs to shorts is the Canadian dollar is 1.45 as 59.2% of the currently open orders are long. Long orders are 1.3% lower than yesterday and 3.4% stronger since last week. Short orders are 0.2% lower than yesterday and 13% stronger since last week. Open interest is 0.9% weaker than yesterday and 3.4% above its monthly average. Looking ahead, the SSI signals USDCAD weakness.For information on an FXCM Managed Fund that takes advantage of the SSI, please review our Sentiment Fund at: http://www.FXCMManagedFunds.com or call +1 646-432-2968