Forex trading crowds continue to buy into US Dollar (Ticker: USDOLLAR) weakness, and our contrarian Speculative Sentiment Index calls for euro, British Pound, Swiss Franc, Japanese Yen, and Canadian Dollar gains against the downtrodden USD.
A sizeable 89% of retail traders in our sample are currently long the US Dollar against the Japanese Yen, while a similar 74% remain long the USDCHF. Given such one-sided sentiment, it seems ill-advised to bet on a major US Dollar reversal.
We will need to see significant shifts in retail crowd sentiment before calling for a US Dollar recovery against high-flying counterparts.
Sharp shifts in trading crowd sentiment give a broadly mixed outlook for the resurgent US Dollar (Ticker: USDOLLAR), but today?s rallies could potentially spark a larger Greenback recovery versus the British Pound and other major currencies.
Last week we claimed that the US Dollar was broadly headed lower on strongly one-sided forex positioning. Indeed, FX Options and Futures sentiment show clear risks that previous Greenback gains could be short-lived. Yet sudden moves in the FXCM Speculative Sentiment Index warn that the most recent dollar rally could be sustained.
Needless to say, traders should be careful of substantial forex market volatility?especially ahead of the highly-anticipated Jackson Hole conference starting tomorrow.
EURUSD ? Sentiment Warns Against Chasing Euro Strength
EURUSD ?Trading crowds remain sharply net-short the euro against the US Dollar, giving contrarian signal that the EURUSD could yet challenge further highs. The ratio of long to short positions in the EURUSD stands at -1.59 as approximately 61% of traders are short. Yet it serves to note that this is a moderation from yesterday when 67% were short, and long positions are up a noteworthy 20.4 percent overnight. Short positions are roughly unchanged (-3.6%), but the potentially significant shift in sentiment warns against chasing EURUSD strength
GBPUSD ? British Pound Forecast Turns Bearish
GBPUSD ? A substantial shift in British Pound sentiment suggests that the pair may have set an important short-term top through recent trade, and further declines seem likely. Last week we highlighted the fact that trading crowds were heavily net-short the British Pound and sentiment gave contrarian signal that the pair may continue to strengthen. Yet the substantial turnaround warns that the opposite is true, and it may be particularly significant to watch the GBPUSD?s reaction to trendline support at the 1.6300 mark.
The ratio of long to short positions in the GBPUSD stands at 1.17 as nearly 54% of traders are long. In detail, long positions are 2.0% higher than yesterday and a massive 146.3% stronger since last week. Short positions are 3.7% higher than yesterday and 44.1% weaker since last week. The SSI is a contrarian indicator and signals more GBPUSD losses.
USDJPY ? Japanese Yen Likely to Remain Strong
USDJPY ? Retail traders remain heavily net-long the US Dollar against the Japanese Yen, giving consistent contrarian signal that the pair could head to further lows. Indeed, our SSI has shown trading crowds remained net-long USDJPY since the pair traded below 90.00, and we have since called for further losses. The ratio of long to short positions in the USDJPY stands at 5.96 as approximately 86% of traders are long. Yesterday, the ratio was at 6.67 as 87% of open positions were long. In detail, long positions are 0.5% higher than yesterday and 7.0% weaker since last week. Short positions are 12.5% higher than yesterday and 38.6% stronger since last week. The modest gain in short positions warns that losses could slow, but the sharply net-long overall bias leaves the USDJPY downtrend intact.
USDCHF ? Swiss Franc Forecast Turns Bearish
USDCHF ? A fairly significant shift in forex crowd trading sentiment leaves our US Dollar/Swiss Franc bias relatively neutral?a clear shift in previous calls for continued losses. Traders had remained heavily net-long the USDCHF since the pair traded near the 1.10 mark. Yet positioning flipped to net-short just three days ago, strongly suggesting that the pair had set an important short-term bottom. The ratio has since flipped back to net-long as long positions outnumber shorts by 1.31 to 1.
The fairly significant shift in sentiment warns that the USDCHF may have set a significant short-term bottom and warns of further rallies.
USDCAD ? Canadian Dollar Outlook Unclear
USDCAD ? Exceedingly choppy US Dollar/Canadian Dollar sentiment leaves few clear signs on what to expect out of the currency pair. Last week we highlighted strongly net-short sentiment as a sign that the USDCAD could continue higher. Yet price failed to break significant resistance at the C$0.9900 mark , and sentiment has once again flipped on the choppy USDAD pair.
The ratio of long to short positions in the USDCAD stands at 1.09 as nearly 52% of traders are long. Yesterday, the ratio was at -1.20 as 55% of open positions were short. In detail, long positions are 13.7% higher than yesterday and 18.5% stronger since last week. Short positions are 13.4% lower than yesterday and 59.6% weaker since last week. The flip to net-long gives us a modestly bearish bias, but we hesitate to chase weakness amidst clear choppiness in recent price action
GBPJPY ? British Pound Outlook Bullish Against JPY
GBPJPY ? The ratio of long to short positions in the GBPJPY stands at -1.38 as nearly 58% of traders are short. Yesterday, the ratio was at -1.20 as 54% of open positions were short. In detail, long positions are 4.6% lower than yesterday and 11.9% stronger since last week. Short positions are 10.2% higher than yesterday and 46.3% stronger since last week. Open interest is 3.4% stronger than yesterday and 19.6% above its monthly average. The SSI is a contrarian indicator and signals more GBPJPY gains.
Source: http://www.fxstreet.com/technical/market-view/speculative-sentiment-index-ssi/2011-08-25.html
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