Written by David Rodriguez, Quantitative Analyst
Full Article

EURUSD – Euro Forecast to Rally Against US Dollar
USDJPY – Japanese Yen to Continue Gaining against USD
GBPUSD – British Pound Forecast Remains Aggressively Bearish
USDCHF – Swiss Franc Forecast to Drop Further on Forex Sentiment
USDCAD – Canadian Dollar Expected to Decline Against USD

While the SSI is available once a week on DailyFX.com, you can receive SSI readings twice a day in DailyFX Plus Forex Intraday Trading Signals. The SSI sought a EURUSD rally since 1.26 and was signaling a reversal around 1.60.



Historical Charts of Speculative Forex Trading Positioning



USDCHF – A massive US Dollar/Swiss Franc rally has invited aggressive USD/CHF selling, and our contrarian indicator gives signal that the pair may continue to rally. The ratio of long to short positions in the USDCHF stands at -2.68 as nearly 73% of traders are short. Yesterday, the ratio was at 1.34 as 57% of open positions were long. In detail, long positions are 41.1% lower than yesterday and 12.0% weaker since last week. Short positions are an incredible 111.5% higher than yesterday and 79.8% stronger since last week. Open interest is 24.2% stronger than yesterday and 23.8% above its monthly average. The SSI is a contrarian indicator and signals more USDCHF gains. Our forex trading signals are accordingly long the USD/CHF.



How do we 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.

Have any further questions about the SSI and forex positioning data? Ask the author David Rodríguez on our forex forum.

We love getting feedback on our reports. Tell us how we’re doing: E-mail the author of this report at drodriguez@dailyfx.com.