EURUSD – Euro Forecast to Recover Against US Dollar on Shift in Forex Positioning USDJPY – Forex Traders Signal that US Dollar/Japanese Yen Pair May Recover USDCHF – US Dollar/Swiss Franc Positioning Forecasts Further Strength GBPUSD – Jump in British Pound/US Dollar Shorts Suggests Turn Imminent USDCAD – Canadian Dollar May Lose Further 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 DailyFX Forex Forum
EURUSD – A strong jump in US Dollar long positions across the board suggests that the Euro may soon turn against the surging US Dollar. As recently as several weeks ago, we saw that forex trading crowds continued to buy into Euro/US Dollar tumbles. Yet the recent jump in Euro/US Dollar short positions shows that many are now trying to latch on to the clear downtrend—an occurrence that we often see towards the end of a strong trend. Indeed, the ratio of long to short positions in the EURUSD stands at -1.30 as nearly 57% of traders are short. Yesterday, the ratio was at 1.04 as 51% of open positions were long. The flip from net long to net short adds further weight to the bullish case, as we see sentiment has noticeably shifted. Short positions are 51.7% higher than yesterday and 78.8% stronger since last week. Our SSI-based trading signals have recently sold the Euro/US Dollar across two separate trading strategies.
USDJPY – Positioning in the US Dollar/Japanese Yen pair shows that the forex trading crowd has stopped buying into USD/JPY declines—the first sign that the Japanese Yen could slow its recently impressive ascent. Indeed, we most often see that the majority of traders try to fade the ongoing trend, but long positions in the US Dollar/Japanese yen have actually fallen 28.1 percent since last week. When traders are net long but buying has dropped considerably, we have often seen a period of consolidation or even short-term reversals in trend. This suggests that the USD/JPY may range trade or bounce through near-term trading, but a drop in open interest makes it difficult to make forecasts with strong conviction through the near term. Monitor our SSI-based USD/JPY trading strategies on DailyFX+.
GBPUSD –The forex trading crowd has, perhaps unexpectedly, accurately forecasted continued British Pound/US Dollar declines through the past two months of trading. We have most often seen crowds attempt to buy into strong downtrends, but that has not been the case as of late. This dynamic has admittedly has decreased the effectiveness of our SSI as a forecasting tool for the GBP/USD. That being said, we do see that selling interest has actually picked up on the British Pound against the US Dollar, and many traders may be attempting to latch on to the final stages of recent GBP/USD tumbles. Short positions are 19.1% higher than yesterday and 4.7% stronger since last week. The strong jump in short interest suggests that we may see the GBP/USD turn through near-term trade, but again, our confidence in said forecast is low due to sustained selling interest through recent GBP/USD tumbles. Discuss the British Pound with other traders in our forex forum.
USDCHF – The ratio of long to short positions in the USDCHF stands at -1.86 as nearly 65% of traders are short. Yesterday, the ratio was at -2.29 as 70% of open positions were short. In detail, long positions are 16.3% higher than yesterday and 10.4% weaker since last week. Short positions are 5.6% lower than yesterday and 5.0% stronger since last week. Open interest is 1.1% stronger than yesterday and 38.4% below its monthly average. The SSI is a contrarian indicator and signals more USDCHF gains.
USDCAD – Traders continue heavily net-long the US Dollar against the Canadian Dollar, but a sudden jump in short positions suggests that a turn in sentiment will bring a shift in forecasts on the USD/CAD pair. The ratio of long to short positions in the USDCAD stands at 2.25 as nearly 69% of traders are long. Typically such sentiment extremes tell us that the US Dollar may decline against its Canadian counterpart, but we likewise see that short positions have actually jumped 16.0 percent overnight. When forex trading crowds are net-long but begin to sell the USD/CAD, we often see a USD/CAD rally through subsequent trade. 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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