EURUSD – Euro Forecast to Decline Further Against US Dollar on Forex Positioning USDJPY – Japanese Yen Likely to Continue Higher Through Short-Term Trading USDCHF – US Dollar/Swiss Franc Positioning Forecasts Further Strength GBPUSD – British Pound Forecast Unclear Against US Dollar USDCAD – Canadian Dollar Forecast to Fall Further versus 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 DailyFX Forex Forum
EURUSD – Currency trading crowds have recently bought the Euro against the US Dollar, and we forecast that the sudden shift in sentiment may bring Euro weakness against its US counterpart. The ratio of long to short positions in the EUR/USD stands near parity as approximately 51 percent of traders are short. This is an abrupt shift from yesterday, when 54 percent of positions were short the Euro/US Dollar—longs have jumped by 19.3 percent overnight. When Euro/US Dollar positioning is close to flipping to net-long on strong buying interest, we often see that price moves in the opposite direction. We forecast that the Euro/US dollar will continue lower through upcoming trade. Our SSI-based trading signals have subsequently sold the Euro/US Dollar across two separate trading strategies.
USDJPY – Currency traders have recently bought into US Dollar/Japanese Yen declines, and the ratio of long to short positions in the USD/JPY currently stands at 1.30 as nearly 56 percent of traders are long. In fact, US dollar/Japanese Yen long positions have surged by 30.9 percent overnight—clear sign that the forex trading crowd is becoming increasingly bullish the fast-falling pair. Whenever we see crowds buying into sharp USD/JPY declines, we often see the currency pair continue lower through subsequent trading. Indeed, the SSI is a contrarian indicator and signals more USDJPY losses. Monitor our SSI-based USD/JPY trading strategies on DailyFX+.
GBPUSD – Currency trading crowds have, perhaps surprisingly, remained heavily net short the British Pound against the US Dollar through recent tumbles. We most often see that the crowd tends to be on the wrong side of the market, but traders have remained net-short the GBP/UDS since it traded near 1.8000. Short positions in the GBP/USD have actually jumped 28.4 percent overnight, while long positions are up by a lesser 19.2 percent through the same period. Our SSI is a contrarian indicator and signals short-term GBP/USD gains, but we warn that contrarian analysis of forex positioning in the GBP/USD has proven inaccurate through recent trading. Discuss the British Pound with other traders in our forex forum.
USDCHF – The ratio of long to short positions in the USDCHF stands at -1.87 as nearly 65% of traders are short. Yesterday, the ratio was at -2.27 as 69% of open positions were short. In detail, long positions are 26.6% higher than yesterday and 14.0% weaker since last week. Short positions are 4.2% higher than yesterday and 2.1% stronger since last week. Open interest is 11.0% stronger than yesterday and 35.4% below its monthly average. The SSI is a contrarian indicator and signals more USDCHF gains.
USDCAD – Currency trading crowds remain heavily net long the US Dollar against the Canadian dollar. We will typically take a strictly contrarian view when the majority of traders are net long a given currency pair. Yet we have seen a consistently bullish bias on the USD/CAD through the past several years of trading, and such a dynamic complicates our readings of forex sentiment in the US Dollar/Canadian Dollar pair. That being said, we do notice that long positions have fallen fairly sharply through recent trade, suggesting that sentiment is becoming increasingly bearish the USD/CAD. Indeed, short positions have gained by 35.4 percent overnight—giving us a contrarian forecast that the USD/CAD may continue to rally through the near term. 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.
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