fxcm speculative sentiment index

Traders Sell Dollars After the Worst Jobs Report in 34 years

Friday, 05 December 2008 15:42:38 GMT  |  Antonio Sousa, Chief Strategist

Retail traders have become increasingly bearish towards the U.S. dollar after a government report showed that Non-Farm Payrolls fell more than half-a-million jobs in November, the most in 34 years. In fact, according to the FXCM SSI which measures the positioning of thousands of retail traders, the ratio of long to short positions in the EURUSD stands at 1.22 as nearly 55% of traders are long euros and short dollars.

This week, the the ratio of long to short positions in the EURUSD stands at 1.22 as nearly 55% of traders are long euros and short dollars, according to the FXCM SSI which measures the positioning of thousands of retail traders. Last week, the ratio was at 1.14 as nearly 53% of open positions were long. However, 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. Moreover, the higher the number of long orders in a bear market the more dangerous is to take additional long positions because many traders are also leaving their stop losses just above the current price action. The FXCM SSI as a contrarian indicator and signals more EUR/USD losses going forward.

Euro/Dollar Forecast For 2009

It is always difficult to make exchange rate forecasts, particularly when the currency market is very volatile.  Even so, we have been we arguing that a considerable deterioration of the euro zone economy in 2009, could lead to a significant shift of interest rate differentials in favor of the U.S. dollar and keep the EUR/USD under pressure over the next few months. Indeed, recent economic data points toward weakening of real GDP growth in the euro zone economy and a more accommodative monetary policy by the European Central Bank could be needed to prevent the region from falling into a much deeper recession. On the other hand, the recent sell-off in commodities, particularly in oil, should alleviate some downward pressure from the U.S. economy which has been running a current account deficit of nearly 5 percent of the GDP.

Source: Bloomberg

Written by Antonio Sousa, Chief Strategist for DailyFX.com, asousa@fxcm.com

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