British Pound Forecast Turns Bearish on Forex Sentiment

EURUSD – Euro Forecast Unclear as Forex Traders Remain Indecisive
GBPUSD – British Pound Forecast Turns Bearish on Sharp Sentiment Shifts
USDJPY – Japanese Yen Outlook Modestly Bullish Against US Dollar
USDCHF – Swiss Franc Bias Summarily Unclear Following SNB Actions
USDCAD – Canadian Dollar Forecast Remains Bullish Against US Dollar


EURUSD-An extraordinarily choppy weak of forex trading has made for indecisive crowd sentiment. After being very heavily net-short the EURUSD through earlier trade, traders are nearly neutral as only 51% of traders are short. Yesterday 53% of traders were short, and a 13.1% jump in long positions signals that sentiment is progressively turning. We typically view crowd position as a contrarian forecaster of price action, and the slow-but-steady increase in long orders has led one of our sentiment-based trading systems to go short the EURUSD. Qualitatively, we would prefer to wait for a much sharper shift in the SSI before calling for aggressive EURUSD losses.

GBPUSD-Sharp shifts in forex crowd trading sentiment suggests that the British Pound may continue to lose against the US Dollar. Traders had remained net-short the GBPUSD since June 4, and the pair rallied approximately 300 pips through that time. Yet sharp drops have actually led long positions a massive 42.9% higher than yesterday, and the SSI ratio is in net-long territory for the first time in over two weeks. Our contrarian bias to crowd positioning calls for further GBPUSD losses through upcoming trade, and one of our sentiment-based forex trading systems is accordingly short through time of writing.

USDJPY-Forex trading crowds remain heavily net-long the US Dollar against the Japanese Yen, and a contrarian view of crowd sentiment calls for further USDJPY declines. It is worth noting, however, that the one-sided nature of positioning has moderated substantially as of late. The ratio of long to short positions in the USDJPY stands at 1.53 as nearly 61% of traders are long. Yesterday, the ratio was at 2.24 as 69% of open positions were long. In detail, long positions are 16.1% lower than yesterday and 9.8% stronger since last week. Short positions are 22.5% higher than yesterday and 14.8% stronger since last week. The sharp jump in short positions limits our bearish bias and we believe that the USDJPY could rally before further declines.

USDCHF-An incredible Swiss Franc decline has led forex trading crowds to flip on their long-standing long position in USDCHF, with traders hitting net-short for the first time since April. The ratio of long to short positions in the USDCHF currently stands at 1.06 as nearly 51% of traders are long. Yesterday, the ratio was at -1.05 as 51% of open positions were short. In detail, long positions are 6.1% higher than yesterday and a sizeable 24.4% weaker since last week. Short positions are 4.8% lower than yesterday and 34.6% stronger since last week. Incredibly indecisive price action and positioning gives us a fairly neutral bias on the USDCHF—especially as the Swiss National Bank threatens further intervention on CHF strength.

USDCAD – The ratio of long to short positions in the USDCAD stands at -1.12 as nearly 53% of traders are short. Yesterday, the ratio was at -1.19 as 54% of open positions were short. In detail, long positions are 4.2% higher than yesterday and 14.1% weaker since last week. Short positions are 1.2% lower than yesterday and 13.4% stronger since last week. Open interest is 1.2% stronger than yesterday and 98.1% above its monthly average. The SSI is a contrarian indicator and signals more USDCAD gains.
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.