EURUSD – Euro Forecast to Decline Further Against US Dollar on Forex Positioning USDJPY – Japanese Yen Likely to Continue Higher Through Short-Term Trading
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 – Forex trading crowds accurately predicted a sharp Euro US Dollar reversal through relatively illiquid North American holiday trading, as the majority of speculators remained heavily net short the Euro/US Dollar on its run to 1.3000. Traders have since taken profits and flipped to net long, and the sudden shift suggests that we may in fact see a continuation in the EUR/USD downward move. The ratio of long to short positions in the EURUSD stands at 1.15 as nearly 54% of traders are long. Yesterday, the ratio was at -1.08 as 52% of open positions were short. In detail, long positions are 27.4% higher than yesterday and 32.1% stronger since last week. The SSI is a contrarian indicator and signals more EURUSD losses. Our SSI-based trading signals have subsequently sold the Euro/US Dollar through one of our two Breakout strategies.
USDJPY – The majority of forex traders remain long the US Dollar against the Japanese Yen, and our contrarian SSI indicator signals that the pair may continue its decline. The ratio of long to short positions in the USDJPY stands at 1.17 as nearly 54% of traders are long. Yesterday, the ratio was at -1.12 as 53% of open positions were short. In detail, long positions are 1.6% lower than yesterday and 11.0% weaker since last week. Short positions are 24.9% lower than yesterday and 24.7% weaker since last week. The SSI is a contrarian indicator and signals more USDJPY losses. Monitor our SSI-based USD/JPY trading strategies on DailyFX+.
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.
For information on an FXCM Managed Account that takes advantage of the SSI, please review our Sentiment Program at: http://www.fxcmmanagedaccounts.com/ or call +1 646-432-2968.