Tuesday, 01 Jun 2010 19:30 GMT SSI: Retail Traders Pack into EURUSD Shorts after a Brief Dip Below Historical Range’s Mid-Point

Intraday Highlight:

EURUSD – The ratio of long to short positions in the EURUSD stands at -1.18 as nearly 54% of traders are short. Yesterday, the ratio was at 1.10 as 52% of open positions were long. In detail, long positions are 4.3% lower than yesterday and 5.3% stronger since last week. Short positions are 24.0% higher than yesterday and 19.8% stronger since last week. Open interest is 9.2% stronger than yesterday and 8.8% above its monthly average. The SSI is a contrarian indicator and signals more EURUSD gains.

SSI Details:

GBPUSD – The ratio of long to short positions in the GBPUSD stands at -1.55 as nearly 61% of traders are short. Yesterday, the ratio was at -1.03 as 51% of open positions were short. In detail, long positions are 16.0% lower than yesterday and 17.3% weaker since last week. Short positions are 26.8% higher than yesterday and 46.2% stronger since last week. Open interest is 5.7% stronger than yesterday and 10.0% above its monthly average. The SSI is a contrarian indicator and signals more GBPUSD gains.

GBPJPY – The ratio of long to short positions in the GBPJPY stands at 1.05 as nearly 51% of traders are long. Yesterday, the ratio was at 1.30 as 57% of open positions were long. In detail, long positions are 14.2% lower than yesterday and 18.2% weaker since last week. Short positions are 6.8% higher than yesterday and 32.0% stronger since last week. Open interest is 5.1% weaker than yesterday and 1.6% below 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 1.70 as nearly 63% of traders are long. Yesterday, the ratio was at 1.61 as 62% of open positions were long. In detail, long positions are 1.9% higher than yesterday and 17.2% weaker since last week. Short positions are 3.7% lower than yesterday and 7.3% stronger since last week. Open interest is 0.3% weaker than yesterday and 8.7% below its monthly average. The SSI is a contrarian indicator and signals more USDJPY losses.

USDCAD – The ratio of long to short positions in the USDCAD stands at 1.47 as nearly 60% of traders are long. Yesterday, the ratio was at 1.43 as 59% of open positions were long. In detail, long positions are 5.7% lower than yesterday and 18.3% stronger since last week. Short positions are 8.8% lower than yesterday and 6.3% weaker since last week. Open interest is 7.0% weaker than yesterday and 5.3% below its monthly average. The SSI is a contrarian indicator and signals more USDCAD losses.

USDCHF – The ratio of long to short positions in the USDCHF stands at -1.23 as nearly 55% of traders are short. Yesterday, the ratio was at -1.38 as 58% of open positions were short. In detail, long positions are 3.8% lower than yesterday and 15.6% weaker since last week. Short positions are 14.5% lower than yesterday and 15.6% weaker since last week. Open interest is 10.0% weaker than yesterday and 17.1% below its monthly average. The SSI is a contrarian indicator and signals more USDCHF gains.

AUDUSD – The ratio of long to short positions in the AUDUSD stands at -1.01 as nearly 50% of traders are short. Yesterday, the ratio was at 1.00 as 50% of open positions were long. In detail, long positions are 1.6% lower than yesterday and 0.4% stronger since last week. Short positions are 0.4% lower than yesterday and 37.3% stronger since last week. Open interest is 1.0% weaker than yesterday and 1.7% below 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 long. Yesterday, the ratio was at -1.08 as 52% of open positions were short. In detail, long positions are 39.7% higher than yesterday and 48.7% stronger since last week. Short positions are 4.7% lower than yesterday and 40.7% stronger since last week. Open interest is 16.7% stronger than yesterday and 16.7% above its monthly average. The SSI is a contrarian indicator and signals more NZDUSD losses.

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.