Reply #36: FXCM SSI: Nearly 74 percent of Retail Traders Remain Short Euros

[Ghost Dog]

http://www.dailyfx.com/story/special_report/special_reports/Fxcm_SSI__Nearly_74_percent_1184855276135.html?engine=rss&keyword=article

Written by Antonio J F Sousa, Currency Analyst
EURUSD – Nearly 74 percent of Retail Traders Remain Short Euros.
GBPUSD – Long Positions Are Up by 30 percent Since Last Week.
USDJPY – The SSI gives us a Strong Signal to Sell US dollars Against the Japanese Yen.
USDCHF – The Ratio Remains Extreme. We Have 5 Longs for Each Short.
USDCAD – Positions Outstanding Fall By 3 Percent on Stops Liquidation.



How to 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.

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EURUSD - The ratio of long to short positions in the EURUSD stands at -2.85 as nearly 74% of traders are short. However, during this week, retail has been buying the EURUSD (long positions are up by 22.9% since last week). Short positions are 8.4% higher than yesterday but only 0.1% weaker since last week. When retail is short but reduces its exposure, the long term direction remains bullish but the market might have some downside in the short term. The SSI gives us a MEDIUM STRENGTH SIGNAL TO BUY EURUSD.

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GBPUSD - The ratio of long to short positions in the GBPUSD stands at -1.6 as nearly 61% of traders are short. Yesterday, the ratio was at -2.07 as 67% of open positions were short. In detail, long positions are 26.3% higher than yesterday and 30.7% stronger since last week. Short positions are 2.4% lower than yesterday and 4.8% weaker since last week. Open interest is 7.0% stronger than yesterday and 6.3% above its monthly average. The SSI is a contrarian indicator and signals more GBPUSD gains.

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USDCHF - The ratio of long to short positions in the USDCHF stands at 4.86 as nearly 83% of traders are long. Yesterday, the ratio was at 5.45 as 85% of open positions were long. In detail, long positions are 1.5% higher than yesterday and 4% weaker since last week. Short positions are 13.8% higher than yesterday and 23.2% stronger since last week. Open interest is 3.4% stronger than yesterday and 19.2% above its monthly average. The SSI gives us a signal to sell USDCHF.

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USDJPY - The ratio of long to short positions in the USDJPY stands at 1.46 as nearly 59% of traders are long. Moreover, retail has been buying more USDJPY (long positions are up by 15.6% since last week). In the past, when retail was long and buying more, the USDJPY has sold off in the following days. The SSI gives us a STRONG SIGNAL TO SELL USDJPY.

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USDCAD - The ratio of long to short positions in the USDCAD stands at 4.13 as nearly 81% of traders are long. Yesterday, the ratio was at 4.03 as 80% of open positions were long. In detail, long positions are 2.2% higher than yesterday and 5.0% weaker since last week. Short positions are 0.4% lower than yesterday and 8% stronger since last week. Open interest is 1.7% stronger than yesterday and 1.8% above its monthly average. The SSI is a contrarian indicator and signals more USDCAD losses.

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In other words, this "contrarian" indicator indicates USD heading further towards the floor.