fxcm speculative sentiment index

Profit Taking By EUR/USD Longs Drives Positioning Ratio More Net Short

Thursday, 12 April 2007 15:20:18 GMT  |  Antonio Sousa, Currency Analyst

EUR/USD – Profit Taking By EUR/USD Longs Drives Positioning Ratio More Net Short
GBP/USD – Short Positioning Grew Less Extreme
USD/JPY –  Current Positioning Favors USD/JPY at 120
USD/CHF –  Ratio of Longs To Shorts Remains Extreme
USD/CAD –  Current Positioning Signals More USD/CAD Losses

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.

EURUSD – This week the ratio of longs to shorts in the EUR/USD is -1.48 as 60% of the currently open orders are short. Long orders are 3.2% lower than yesterday and 7.6% weaker since last week. Short orders are 6.3% higher than yesterday and 6% stronger since last week. Open interest is 2% stronger than yesterday and 8.9% above its monthly average. Looking back one can see that speculative positioning in the EUR/USD flipped to net short in October and has remained relatively unchanged since then coinciding with a sharp appreciation of the EUR/USD. Looking ahead, the contrarian nature of the ratio favors more euro gains against the US dollar.

GBPUSD - The sterling positioning ratio flipped to net short in October and has remained mostly net short since then. This week, the ratio of longs to shorts is -1.33 as 57.1% of the currently open orders are short. Long orders are 0.2% higher than yesterday and 6.1% stronger since last week. Short orders are 9.6% lower than yesterday and 7.2% weaker since last week. Open interest is 5.6% weaker than yesterday and 9.5% below its monthly average. Looking ahead, the SSI signals GBPUSD strength.

USDCHF - The ratio of longs to shorts in the Swiss franc is 2.15 as 68.3% of the currently open orders are long. Long orders are 4.1% higher than yesterday and 2.3% weaker since last week. Short orders are 7.3% higher than yesterday and 0.2% stronger since last week. Open interest is 5.1% stronger than yesterday and 10.1% above its monthly average. Looking ahead, the SSI signals USDCHF weakness.

USDJPY - The ratio of longs to shorts in the USD/JPY flipped to net short and currently stands at -1.09 as 52.2% of the currently open orders are short. Long orders are 3.0% higher than yesterday and 22.5% weaker since last week. Short orders are 0.7% higher than yesterday and 6.1% stronger since last week. Open interest is 1.8% stronger than yesterday and 0.9% below its monthly average. Looking ahead, the SSI signals USDJPY strength.

USDCAD - The ratio of longs to shorts is 1.61 as 61.7% of the currently open orders are long. Long orders are 0.8% lower than yesterday and 1.7% weaker since last week. Short orders are 1.1% higher than yesterday and 15.5% weaker since last week. Open interest is 0.1% weaker than yesterday and 6.5% below its monthly average. Looking ahead, the SSI signals USDCAD weakness.

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