I'll leave this for other forum members to comment on. But essentially, you'll find that retail positioning is a contrarian indicator for price action. To cut a long story short, traders should be wary of being on the same side as the retail "crowd", as they tend to be wrong during volatile market conditions. Given recent volatility, fading the SSI has proven impressively profitable.


In fact our own Sentiment Fund, which is based on the SSI, saw its best month ever through July.

http://www.fxcm.com/managed-funds/Sy...formance?id=52

FXCM SSI: GBPUSD Longs Drop 17.4% On Repeated Failure Of 2.02

Friday, 31 August 2007 09:17:11 GMT
Written by John Kicklighter, Currency Analyst


EURUSD - The ratio of long to short positions in the EURUSD stands at -1.75 as nearly 64% of traders are short. Yesterday, the ratio was at -1.43 as 59% of open positions were short. In detail, long positions are 9.8% lower than yesterday and 2.7% weaker since last week. Short positions are 10.4% higher than yesterday and 4.7% weaker since last week. Open interest is 2.1% stronger than yesterday and 12.3% below its monthly average. The SSI is a contrarian indicator and signals more EURUSD gains.

My take << longs not confident and shorts are short-term, mixed direction with slight bullish bias O/I is 12% under monthly avg. explains some of the illiquid vol's.>>

GBPUSD - The ratio of long to short positions in the GBPUSD stands at -1.30 as nearly 56% of traders are short. Yesterday, the ratio was at -1.03 as 51% of open positions were short. In detail, long positions are 17.4% lower than yesterday and 15.0% weaker since last week. Short positions are 3.5% higher than yesterday and 23.6% weaker since last week. Open interest is 6.8% weaker than yesterday and 29.5% below its monthly average. The SSI is a contrarian indicator and signals more GBPUSD gains.

My take <<longs 17% lower no confidence and 15% weaker since last week. Shorts slightly higher in confid. short-tem says go long not big move since positioning since last weak is 23% weaker doesnt give it much fuel. O/I is 29% under monthly avgs says " hello is anyone out there???" Bias long cable towards 237 249 area. Hard pressed to get dly close > 237.

USDJPY - The ratio of long to short positions in the USDJPY stands at 1.80 as nearly 64% of traders are long. Yesterday, the ratio was at 1.99 as 67% of open positions were long. In detail, long positions are 4.4% higher than yesterday and 3.7% weaker since last week. Short positions are 15.6% higher than yesterday and 24.9% stronger since last week. Open interest is 8.2% stronger than yesterday and 5.1% below its monthly average. The SSI is a contrarian indicator and signals more USDJPY losses.

My take <<Yenny stronger move here as shorts are emboldened, counter trend long $ short yen trade in play with 15% stronger short term and 25% stronger long term.>>


Euchre

no positions
Disclaimer Trading Currencies involves risk. Any opinion, research, analyses, prices, or other information is provided as general market commentary, and does not constitute investment advice.

I'd hazard a guess that retail traders are more short EURUSD than last week. If they are then they are adding to their positions .... Hmmmm.

According to our latest prop dealing data, at 9:30 AM on 09/04 this was the positioning of a sample of retail traders

EURUSD 1.35601 -1.04 49% Bullish
GBPUSD 2.00873 -1.16 46% Bullish
USDJPY 115.663 2.09 68% Bearish
USDCHF 1.21425 1.81 64% Bearish
USDCAD 1.05416 3.88 79% Bearish

EURUSD - 51% of retail traders are short EURUSD (long to short ratio is -1.04). However, since last week, retail has been buying the EURUSD (long positions are up by 20.8%). When retail is short but reduces its exposure, the long term direction remains bullish but the market might have some downside in the short term. The SSI gives us a MEDIUM SIGNAL TO BUY EURUSD.

GBPUSD - 54% of retail traders are short GBPUSD (long to short ratio is -1.16). However, since last week, retail has been buying the GBPUSD (long positions are up by 1.5%). When retail is short but reduces its exposure, the long term direction remains bullish but the market might have some downside in the short term. The SSI gives us a MEDIUM SIGNAL TO BUY GBPUSD.

USDJPY - 68% of retail traders are long USDJPY (long to short ratio is 2.09). However, since last week, retail has been selling the USDJPY (short positions are up by 2.4%). When retail is long but reduces its exposure, the long term direction remains bearish but the market might have some upside in the short term. The SSI gives us a MEDIUM SIGNAL TO SELL USDJPY.

USDCHF - 64% of retail traders are long USDCHF (long to short ratio is 1.81). However, since last week, retail has been selling the USDCHF (short positions are up by 54.1%). When retail is long but reduces its exposure, the long term direction remains bearish but the market might have some upside in the short term. The SSI gives us a MEDIUM SIGNAL TO SELL USDCHF.

USDCAD - 79% of retail traders are long USDCAD (long to short ratio is 3.88). Moreover, since last week, retail has been aggressively buying USDCAD (long positions are up by 6.4%). In the past, when retail was long and buying more, the USDCAD has sold off in the following days. The SSI gives us a STRONG SIGNAL TO SELL USDCAD.

Sheesh! I just went long EURUSD and now I hear the Jaws soundtrack in my head ...

Considering sentiment is very roughly even-ish across the majors and that of Friday's *BIGGIE*, NFP, I'm thinking here that it might be profitable just to trade the ranges that we're in. Of course if there's a large shift in sentiment either way as the week progresses then so will this sentiment based strategy ... I guess.

EURUSD 1.36093 -1.14 47% Bullish
GBPUSD 2.01383 -1.21 45% Bullish
USDJPY 116.195 1.59 61% Bearish
USDCHF 1.21087 1.88 65% Bearish
USDCAD 1.05024 4.37 81% Bearish

61% of retail traders are long USDJPY (long to short ratio is 1.59). However, since last week, retail has been selling the USDJPY (short positions are up by 13.7%). When retail is long but reduces its exposure, the long term direction remains bearish but the market might have some upside in the short term. The SSI gives us a MEDIUM SIGNAL TO SELL USDJPY.

I think this sounds like a reasonable strategy. But don't forget that we'll see significant event risk between now and Friday. This includes, but is not limited to, the Bank of Canada rate decision, ECB rate decision, and BoE rate decision. Watch for any particularly volatile moves around these events. The coming Reserve Bank of Australia interest rate decision has an off-chance of driving big moves, but it's fairly unlikely that the bank raises rates again in the face of recent market turmoil.

<swallow's hard>How could I forget!</swallow's hard>

EURUSD 1.36418 -1.33 43% Bullish
GBPUSD 2.01687 -1.18 46% Bullish
USDJPY 115.223 2.18 69% Bearish
USDCHF 1.20519 2.51 72% Bearish
USDCAD 1.05206 4.22 81% Bearish

68% of retail traders are long USDJPY (long to short ratio is 2.17). Moreover, since last week, retail has been aggressively buying USDJPY (long positions are up by 2.1%). 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.

Currency pair Quote Ratio L/S % Long Signal
EURUSD 1.36508 -1.67 37% Bullish
GBPUSD 2.01998 -1.63 38% Bullish
USDJPY 115.206 2.28 70% Bearish
USDCHF 1.20395 2.78 74% Bearish
USDCAD 1.05393 4.20 81% Bearish

The ratio of long to short positions in the EURUSD stands at -1.28 as nearly 56% of traders are short. Yesterday, the ratio was at -1.35 as 58% of open positions were short. In detail, long positions are 10.0% higher than yesterday and 0.6% stronger since last week. Short positions are 3.7% higher than yesterday and 13.5% weaker since last week. Open interest is 6.4% stronger than yesterday and 9.8% below its monthly average. The SSI is a contrarian indicator and signals more EURUSD gains.

Carry Trade basket

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The ratio of long to short positions in the EURUSD stands at -1.66 as nearly 62% of traders are short. Yesterday, the ratio was at -1.68 as 63% of open positions were short. In detail, long positions are 3.9% higher than yesterday and 2.4% weaker since last week. Short positions are 2.7% higher than yesterday and 13.5% stronger since last week. Retail has been aggressively selling EURUSD and in the past, when retail was short and selling more, the EURUSD has rallied in the following days.

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SSI: Contrarian Traders Call for EUR/USD at 1.37

Currency pair Quote Ratio L/S % Long Signal
EURUSD 1.36837 -2.00 33% Bullish
GBPUSD 2.02232 -1.58 39% Bullish
USDJPY 115.373 1.92 66% Bearish
USDCHF 1.20176 2.94 75% Bearish
USDCAD 1.05325 4.04 80% Bearish


EURUSD - The ratio of long to short positions in the EURUSD stands at -2.00 as nearly 67% of traders are short. Yesterday, the ratio was at -1.68 as 63% of open positions were short. In detail, long positions are 10.1% lower than yesterday and 15.6% weaker since last week. Short positions are 7.2% higher than yesterday and 18.5% stronger since last week. Open interest is 0.7% stronger than yesterday and 7.0% below its monthly average. The SSI is a contrarian indicator and signals more EURUSD gains.

GBPUSD - The ratio of long to short positions in the GBPUSD stands at -1.58 as nearly 61% of traders are short. Yesterday, the ratio was at -1.29 as 56% of open positions were short. In detail, long positions are 5.3% lower than yesterday and 20.3% weaker since last week. Short positions are 16.3% higher than yesterday and 26.9% weaker since last week. Open interest is 6.9% stronger than yesterday and 25.5% below its monthly average. The SSI is a contrarian indicator and signals more GBPUSD gains.

USDJPY - The ratio of long to short positions in the USDJPY stands at 1.92 as nearly 66% of traders are long. Yesterday, the ratio was at 1.92 as 66% of open positions were long. In detail, long positions are 19.1% higher than yesterday and 3.2% stronger since last week. Short positions are 19.2% higher than yesterday and 32.4% stronger since last week. Open interest is 19.1% stronger than yesterday and 13.2% 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 2.94 as nearly 75% of traders are long. Yesterday, the ratio was at 2.46 as 71% of open positions were long. In detail, long positions are 14.5% higher than yesterday and 42.0% weaker since last week. Short positions are 4.1% lower than yesterday and 49.0% stronger since last week. Open interest is 9.1% stronger than yesterday and 11.0% below its monthly average. The SSI is a contrarian indicator and signals more USDCHF losses.

USDCAD - The ratio of long to short positions in the USDCAD stands at 4.04 as nearly 80% of traders are long. Yesterday, the ratio was at 4.21 as 81% of open positions were long. In detail, long positions are 1.4% lower than yesterday and 7.7% stronger since last week. Short positions are 2.7% higher than yesterday and 1.8% weaker since last week. Open interest is 0.6% weaker than yesterday and 2.3% above its monthly average. The SSI is a contrarian indicator and signals more USDCAD losses.


For information on an FXCM Managed Fund that takes advantage of the SSI, please review our Sentiment Fund at: http://www.fxcmmanagedfunds.com/ or call +1 646-432-2968.

Let's see if we dissect these guys. (Sorry Euchre, let me take a stab at it ;-) )

The Euro's SSI reading is bullish on both a medium term and short term basis. Traders are heavily long, with long positions outweighing shorts by 2:1. The growing net longs only confirm this view, and leave further EUR upside through the short term. Watch out for tomorrow's NFP's, though. Any short-term scalp could easily turn into a loser on the extremely market-moving report.

See the description for the EURUSD SSI positioning above. It's basically the same assessment.

The medium term trend remains bearish for the USDJPY, but the shorter term sees scope for a rally. The large gain in short positions leaves risks to the topside in the near term.

Look at the description for the EURUSD above, but read it exactly upside-down. the USDCHF SSI reading is bearish both on a medium term and short term basis.

The medium term direction for the USDCAD remains lower, but recent range trade and a slight moderation in net-longs leaves scope for a shorter-term rally.

Euchre, alternate readings are of course welcome.