| | | FXCM SSI: Euro Likely to Hit Fresh Highs Post EU Summit
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Retail trading crowds remain exceedingly net-long the US Dollar (ticker: USDOLLAR) as it falls sharply against the Euro following the most recent European summit. Such strongly one-sided sentiment suggests the Euro/US Dollar could continue to rally despite significant surges.
Sizeable US Dollar losses have been met with similarly aggressive crowd buying, giving us contrarian signal that the Greenback could fall to fresh lows. Clearly such extreme moves tell us that the Euro/US Dollar could soon see a significant turnaround. Yet trend turnarounds are extremely rare; better to bet on trend extensions as these last much longer than the single reversal.
A record correlation between the US Dollar and the Dow Jones Industrial Average underlines the fact that markets are increasingly moving in tandem. Thus we may expect that the US Dollar will continue to trend lower as the Dow and S&P 500 climb to fresh highs.
EURUSD - Trading crowds turned aggressively short the Euro against the US Dollar when the pair traded near the 1.3350 mark and continue to remain short, giving contrarian signal that the pair may continue its advance. The ratio of long to short positions in the EURUSD stands at -1.84 as approximately 65% of traders are short. Long interest fell 6.4 percent overnight and is flat since last week. All the while, short interest is a modest 2.8 percent below yesterday's levels yet 5 percent higher week-over-week.
We have most recently seen traders pull back their short positions as the Euro itself trades off of its highs. Yet as long as the SSI ratio remains negative we will maintain our contrarian bullish bias and call for further strength.
GBPUSD - Forex trading crowds turned net-short the British Pound against the US Dollar when the pair traded near the $1.5450 mark, giving consistent contrarian signal that the pair could continue its advance. The ratio of long to short positions in the GBPUSD stands at -2.47 as 71% of traders are short. In fact, trading crowds continue selling as the number of traders short grew 12 percent overnight; long interest remained roughly unchanged.
When trading crowds are net-short and continue selling, we often see price continue higher and remain bullish the British Pound against the US Dollar.
USDJPY - Trading crowds remain aggressively net-long the US Dollar against the Japanese Yen and have remained long since the pair traded near the 90.00 mark. In fact, our SSI ratio stands at a whopping 13.79 as approximately 93 percent of retail traders are currently long.
In fact, retail traders continue to buy into USDJPY weakness; long interest is 6.1% higher than yesterday and a sizeable 65.2% above a week ago. The risk of Bank of Japan and Ministry of Finance intervention in the USDJPY continues to grow as the pair trades at record-lows. Yet the overwhelming trend and extremely one-sided sentiment favors further short-term declines.
USDCHF - Trading crowds are once again net-long the US Dollar against the Swiss Franc, giving contrarian signal that the pair may continue its recent losses. The ratio of long to short positions in the USDCHF stands at 1.38 as nearly 58% of traders are long. Yesterday, the ratio was at 1.29 as 56% of open positions were long. In detail, long positions are 4.1% higher than yesterday and 0.6% stronger since last week. Short positions are 2.9% lower than yesterday and 1.0% weaker since last week.
The net-long SSI ratio and continued crowd USDCHF buying gives contrarian signal that the pair may continue its recent declines.
USDCAD - Trading crowds remain heavily net-long the US Dollar against the Canadian Dollar, giving contrarian signal that the USDCAD may continue to decline. The ratio of long to short positions in the USDCAD stands at 2.55 as nearly 72% of traders are long.
Yesterday, the ratio was at 2.02 as 67% of open positions were long. In detail, long positions are 12.9% higher than yesterday and 17.4% stronger since last week. Short positions are 10.7% lower than yesterday and 31.5% weaker since last week. Open interest is 5.1% stronger than yesterday and 8.6% below its monthly average. The SSI is a contrarian indicator and signals more USDCAD losses.
GBPJPY - The ratio of long to short positions in the GBPJPY stands at -2.42 as nearly 71% of traders are short. Yesterday, the ratio was at -2.65 as 73% of open positions were short. In detail, long positions are 5.1% higher than yesterday and 2.7% weaker since last week. Short positions are 4.0% lower than yesterday and 7.6% weaker since last week.
Trading crowds remain short, but the recent build in long positions moderates our contrarian GBPJPY-bullish bias.
How do we interpret the SSI? Watch an FXCM Expo Presentation that explains the SSI.
Written by David Rodriguez, Quantitative Strategist for DailyFX.com
To contact David, e-mail drodriguez@dailyfx.com
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Best regards,
David RodrÃguez, Quantitative Strategist
drodriguez@dailyfx.com |
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