fxcm speculative sentiment index

Forex Sentiment Forecasts further Japanese Yen and US Dollar Strength

Thursday, 22 January 2009 13:25:45 GMT  |  David Rodriguez, Quantitative Analyst

EURUSD – Euro Forecast Unclear on Indecisive Forex Positioning
USDJPY – US Dollar Predicted to Lose Further Against Japanese Yen
GBPUSD – British Pound Outlook Remains Bearish Against US Dollar
USDCHF – Forex Sentiment Gives Little US Dollar/Swiss Franc Bias
USDCAD – Canadian Dollar Forecast Unclear Against US Dollar

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 DailyFXForex Forum

Historical Charts of Speculative Forex Trading 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 EURUSD stands at 1.00 as nearly positioning remains almost exactly balanced. Yet it serves to note that longs are 35.3 percent higher than last week, while short orders are only 19.4 percent increased. On aggregate, the increasingly long forex crowd bias on the Euro/US Dollar gives us a modestly bearish bias on the pair. Yet sentiment is not nearly extreme enough to make a forceful prediction. 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. The ratio of long to short positions in the USDJPY stands at 1.40 as nearly 58% of traders are long. This is a modest pullback from yesterday, when 59% of open positions were long. In detail, long positions are 9.2% lower than yesterday and 12.5% stronger since last week. Short positions are 6.6% lower than yesterday and 10.0% stronger since last week. The virtually unshakeable forex crowd long-USDJPY bias gives us reason to believe that the pair will continue to decline through near term trade. Yet a modest pullback in longs weakens the strength of our forecast.

GBPUSD – Our forex trading strategies have recently sold the British Pound against the US Dollar, as a shift in forex trading sentiment signaled that further short-term losses are likely. The ratio of long to short positions in the GBPUSD stands at 1.43 as nearly 59% of traders are long. Yesterday, the ratio was at 1.47 as 60% of open positions were long. In detail, long positions are 9.7% higher than yesterday and 34.2% stronger since last week. Short positions are 12.6% higher than yesterday and 26.5% stronger since last week. Open interest is 10.9% stronger than yesterday and 18.5% below its monthly average. The SSI is a contrarian indicator and signals more GBPUSD losses.

USDCHF – Our sentiment-based bias on the USD/CHF remains relatively neutral, as traders sentiment does not point to gains or losses and open interest is well-below its medium-term average. The ratio of long to short positions in the USDCHF stands at 1.03 as nearly 51% of traders are long. Yesterday, the ratio was at -1.06 as 52% of open positions were short. In detail, long positions are 21.1% higher than yesterday and 37.3% stronger since last week. Short positions are 10.3% higher than yesterday and 46.0% stronger since last week. Open interest is 15.6% stronger than yesterday and 34.1% below its monthly average. The SSI is a contrarian indicator and gives a very marginal USD/CHF-bearish bias.  All the same, ourforex trading signals recently went long the USD/CHF for respectable profits.

USDCAD – Exceedingly low open interest in the US Dollar/Canadian dollar currency pair gives us little bias through near-term trade. The ratio of long to short positions in the USDCAD stands at -1.07 as nearly 52% of traders are short. Yesterday, the ratio was at -1.03 as 51% of open positions were short. In detail, long positions are 12.7% higher than yesterday and 6.9% stronger since last week. Short positions are 17.9% higher than yesterday and 56.2% stronger since last week. Open interest is 15.3% stronger than yesterday and 39.6% below its monthly average. The SSI is a contrarian indicator and marginally signals USD/CAD gains. 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.

 

Resources

• free demo account
• forex courses
• open an account
• forex stream
• free webinars