SSI: EURUSD Ratio Flips Following 22% Decline in Shorts

Friday, 28 May 2010 09:00 GMT

Intraday Highlight:

EURUSD – The ratio of long to short positions in the EURUSD stands at 1.10 as nearly 52% of traders are long. Yesterday, the ratio was at -1.23 as 55% of open positions were short. In detail, long positions are 6.7% higher than yesterday and 12.9% stronger since last week. Short positions are 21.7% lower than yesterday and 6.3% weaker since last week. Open interest is 9.0% weaker than yesterday and 91.9% above its monthly average. The SSI is a contrarian indicator and signals more EURUSD losses.

SSI Details:

EURUSD – The ratio of long to short positions in the EURUSD stands at 1.10 as nearly 52% of traders are long. Yesterday, the ratio was at -1.23 as 55% of open positions were short. In detail, long positions are 6.7% higher than yesterday and 12.9% stronger since last week. Short positions are 21.7% lower than yesterday and 6.3% weaker since last week. Open interest is 9.0% weaker than yesterday and 91.9% above its monthly average. The SSI is a contrarian indicator and signals more EURUSD losses.

GBPUSD – The ratio of long to short positions in the GBPUSD stands at 1.09 as nearly 52% of traders are long. Yesterday, the ratio was at -1.06 as 51% of open positions were short. In detail, long positions are 9.9% higher than yesterday and 1.0% stronger since last week. Short positions are 5.1% lower than yesterday and 25.6% stronger since last week. Open interest is 2.2% stronger than yesterday and 106.6% above its monthly average. The SSI is a contrarian indicator and signals more GBPUSD losses.

GBPJPY – The ratio of long to short positions in the GBPJPY stands at 1.19 as nearly 54% of traders are long. Yesterday, the ratio was at 1.05 as 51% of open positions were long. In detail, long positions are 8.2% higher than yesterday and 12.8% weaker since last week. Short positions are 4.4% lower than yesterday and 37.0% stronger since last week. Open interest is 2.1% stronger than yesterday and 95.3% above its monthly average. The SSI is a contrarian indicator and signals more GBPJPY losses.

USDJPY – The ratio of long to short positions in the USDJPY stands at 1.64 as nearly 62% of traders are long. Yesterday, the ratio was at 1.61 as 62% of open positions were long. In detail, long positions are 1.3% lower than yesterday and 12.5% weaker since last week. Short positions are 3.4% lower than yesterday and 74.3% stronger since last week. Open interest is 2.1% weaker than yesterday and 98.4% above its monthly average. The SSI is a contrarian indicator and signals more USDJPY losses.

USDCHF – The ratio of long to short positions in the USDCHF stands at -1.45 as nearly 59% of traders are short. Yesterday, the ratio was at -1.14 as 53% of open positions were short. In detail, long positions are 11.9% lower than yesterday and 5.5% stronger since last week. Short positions are 12.6% higher than yesterday and 1.4% stronger since last week. Open interest is 1.1% stronger than yesterday and 85.6% above its monthly average. The SSI is a contrarian indicator and signals more USDCHF gains.

USDCAD – The ratio of long to short positions in the USDCAD stands at 1.48 as nearly 60% of traders are long. Yesterday, the ratio was at 1.61 as 62% of open positions were long. In detail, long positions are 4.0% lower than yesterday and 19.3% stronger since last week. Short positions are 4.4% higher than yesterday and 6.9% weaker since last week. Open interest is 0.8% weaker than yesterday and 97.1% above its monthly average. The SSI is a contrarian indicator and signals more USDCAD losses.

AUDUSD – The ratio of long to short positions in the AUDUSD stands at -1.17 as nearly 54% of traders are short. Yesterday, the ratio was at -1.33 as 57% of open positions were short. In detail, long positions are 6.1% higher than yesterday and 9.2% weaker since last week. Short positions are 6.1% lower than yesterday and 95.6% stronger since last week. Open interest is 0.9% weaker than yesterday and 129.5% above its monthly average. The SSI is a contrarian indicator and signals more AUDUSD gains.

NZDUSD – The ratio of long to short positions in the NZDUSD stands at -1.36 as nearly 58% of traders are short. Yesterday, the ratio was at -1.47 as 60% of open positions were short. In detail, long positions are 1.8% higher than yesterday and 2.2% weaker since last week. Short positions are 6.0% lower than yesterday and 92.7% stronger since last week. Open interest is 2.8% weaker than yesterday and 116.6% above its monthly average. The SSI is a contrarian indicator and signals more NZDUSD gains.

How to Interpret the SSI? The FXCM SSI is based on proprietary customer flow information and is designed to rze 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.