FXCM Speculative Sentiment Index (SSI)

Latest Release Dated 10/27/05 (09:00 GMT)

· EURUSD – Euro Positioning Flips to Net Short Signaling Real Bottom  

· GBPUSD – GBPUSD Ratio Continues to Come Off Highs

· USDCHF – USDCHF Ratio Confirms EURUSD Rally

· USDJPY – Remained Net Short for Eighth Consecutive Week

The ratio of longs to shorts in EURUSD is -1.07, which is within the extreme +/- 3 range. After multiple weeks of remaining in net long territory, the EURUSD ratio has flipped to net short this week.  The razor sharp accuracy of the EURUSD SSI contrarian indicator surprises us as well.  Last week, we had said that since the ratio remained net long, we expected the Euro to aim for another test of 1.1900.  When we released last week’s SSI, the EURUSD was trading around 1.20.  A move lower was exactly what we saw the following day, when the EURUSD touched 1.1925. The ratio actually flipped Tuesday afternoon (we wrote about it in our Daily Fundamental report), which coincided perfectly with the recent breakout that we have been seeing.  In fact, with the EURUSD ratio net short and the USDCHF ratio net long, this confirmation signal suggests that we the EURUSD may just be beginning to bottom out.  Over the past week, total positions fell by 6.6% to a monthly low, with long positions cut by 25% and short positions increased by 21%.

The ratio of longs to shorts in GBPUSD is +1.71, which is within the extreme +/- 3 range.  The GBPUSD ratio has remained net long for over a month now as the currency pair sold off close to 1000 pips before turning higher.  The ratio remains net long, but significantly off the +2.21 level reached last month.  Total positions have been cut to a one month low (-18%) with long positions falling by 25% and short positions down by a modest 3.6%.  Although the GBPUSD rally appears to be very strong, with the ratio net long, we remain cautious of calling for further gains ahead, especially since speculators have cut positions.  However, GBPUSD positioning does tend to have a long bias because of the carry advantage and not necessarily because of speculative positioning. 

The ratio of longs to shorts in USDCHF is +1.34, which is within the extreme +/- 3 range.   Over the past week, positioning in USDCHF remained relatively unchanged, down less than 1% as shorts flipped to longs.  Short positions decreased by 24% while long positions increased by 29%.  With the USDCHF ratio having now having flipped to net long, it provides a strong confirmation signal for further gains in the EURUSD and further losses in USDCHF.   

The ratio of longs to shorts in USDJPY is –1.74, which is within the extreme +/- 3 range.  Highlighting the razor sharp accuracy of the SSI, the rally in USDJPY continued to push forward as the USDJPY ratio remained net short for the eighth consecutive week.  The ratio actually hit a high of –5.77 on October 17th but USDJPY failed to hit a top despite the extreme positioning.  It seems that the retracement in the ratio was primarily due to dollar shorts getting stopped out around that time, which exacerbated the push up to 115.99.   In terms of week to week exposure, total positioning fell once again by 16% to one month lows as long positions increased by 3% and short positions fell by another 25%.