Wednesday, 09 Jun 2010 10:17 GMT SSI: NZDUSD Ratio Rises to Extreme Levels as 70% of Retail Traders are Long

FXCM Speculative Sentiment Index (SSI) Statistics:

Intraday Highlight: 

NZDUSD - 70% of retail traders are long (long to short ratio is 2.39). . Last week, the ratio was at -1.13 as 53% of open positions were short. Retail has been buying more NZDUSD (long positions are up by 79.2% since last week). In the past, when retail was long and buying more, the NZDUSD has sold off in the following days. The SSI gives us a STRONG SIGNAL TO SELL NZDUSD.

SSI Details:

EURUSD – 55% of retail traders are long (long to short ratio is 1.25). Retail has been buying more EURUSD (long positions are up by 15.0% since last week). In the past, when retail was long and buying more, the EURUSD has sold off in the following days. The SSI gives us a STRONG SIGNAL TO SELL EURUSD.

GBPUSD – 52% of retail traders are long (long to short ratio is 1.07). . Last week, the ratio was at -1.08 as 52% of open positions were short. Retail has been buying more GBPUSD (long positions are up by 16.0% since last week). In the past, when retail was long and buying more, the GBPUSD has sold off in the following days. The SSI gives us a STRONG SIGNAL TO SELL GBPUSD.

GBPJPY – 55% of retail traders are long (long to short ratio is 1.20). Retail has been buying more GBPJPY (long positions are up by 22.7% since last week). In the past, when retail was long and buying more, the GBPJPY has sold off in the following days. The SSI gives us a STRONG SIGNAL TO SELL GBPJPY.

USDJPY – 63% of retail traders are long (long to short ratio is 1.70). Retail has been buying more USDJPY (long positions are up by 22.8% 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.

USDCHF – 51% of retail traders are long (long to short ratio is 1.06). . Last week, the ratio was at -1.05 as 51% of open positions were shortRetail has been buying more USDCHF (long positions are up by 4.2% since last week). In the past, when retail was long and buying more, the USDCHF has sold off in the following days. The SSI gives us a STRONG SIGNAL TO SELL USDCHF.

USDCAD – 62% of retail traders are long (long to short ratio is 1.66). However, retail has been selling the USDCAD (short positions are up by 16.9% since last week). When retail is long but reduces its exposure, the long term direction remains down but the market might have some upside in the short term. The SSI gives us a MEDIUM SIGNAL TO BUY USDCAD.

AUDUSD – 52% of retail traders are long (long to short ratio is 1.10). Retail has been buying more AUDUSD (long positions are up by 13.8% since last week). In the past, when retail was long and buying more, the AUDUSD has sold off in the following days. The SSI gives us a STRONG SIGNAL TO SELL AUDUSD.

NZDUSD – 70% of retail traders are long (long to short ratio is 2.39). . Last week, the ratio was at -1.13 as 53% of open positions were short. Retail has been buying more NZDUSD (long positions are up by 79.2% since last week). In the past, when retail was long and buying more, the NZDUSD has sold off in the following days. The SSI gives us a STRONG SIGNAL TO SELL NZDUSD.

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.