• EUR/USD - Ratio Remains Net Short, Euro Rally to Continue
• GBP/USD - Pound Set to Extend Rally
• USD/CHF - Remains Net Long, Confirming EURUSD Signal - More Losses Ahead for USDCHF
• USD/JPY  - Ratio Flips, Suggesting that Sell-off Could be Limited

Ratios (negative ratio indicates net short)

Historical Charts Of Speculative Positioning

The ratio of longs to shorts in the EURUSD is -1.07, which is within the extreme +/-3 range.  Highlighting the razor sharp accuracy of the SSI, last week we had said that the net short ratio in the EURUSD combined with the net long ratio in USDCHF was a strong signal of a continuation rally in the EURUSD - and that was exactly what we saw.  Taking a more granular look at the intra-week data and we see that the ratio actually flipped from net short to net long on 8/29, when the EURUSD was trading at 1.2300.  The contrarian signal at the time forecasted a minor sell-off, which did unfold. as the EURUSD slid from 1.2300 to a low of 1.2172.  The ratio then flipped back to net short yesterday afternoon.  On a weekly basis, open interest in the EURUSD fell 7.5% with both bulls (-11%) and bears (-3.7%) reducing exposure ahead of the holiday weekend in the US.  With the EURUSD ratio still net short and the USDCHF ratio still net long, the SSI signals more gains ahead for the EURUSD towards 1.25.

The ratio of longs to shorts in the GBPUSD is -1.03, which is within our extreme +/- 3 range.  Over the past week, the SSI has been a more accurate contrarian indicator for the GBPUSD.  The relationship had broken down a few weeks ago, but during this past week, when the ratio flipped from net short to net long on 8/26, we saw the GBPUSD slide from 1.8060 to 1.7820.  When the ratio flipped back from net long to net short on the afternoon on 8/30, the GBPUSD proceeded to rally from its low to its current levels (1.8150).  With the ratio still net short, there are no signs yet of the GBPUSD rally abating, unless of course the ratio flips back to net long.  Meanwhile, open interest fell 5.8% with long position unchanged and short positions lower by 11%.

The ratio of longs to shorts in USDCHF is +1.49, which is within the extreme +/- 3 range.  Last week we had said that with the USDCHF ratio growing increasingly net long, the SSI signaled that there would be a continuation of the sell-off in USDCHF and that was exactly what we saw.  As of the 5am data - the ratios from the SSI signaled more gains ahead for the EURUSD and more losses for USDCHF.  On a weekly basis, open interest in USDCHF fell 16% with short positions declining by 7% and long positions also falling by 21%.  It appears that traders are really cutting exposure ahead of the long holiday weekend.

The ratio of longs to shorts in USDJPY is -1.78, which is within the extreme +/- 3 range.  The ratio flipped from net long to net short over the past week with open interest falling by 11%.  Short positions increased by 15% while long positions decreased by a whopping 37%.  The ratio actually flipped to net short the day after last week's release, when USDJPY was trading at 109.65 and has remained net short since then.  The currency pair then proceeded to rally to a high of 111.78 before reversing course.  The ratio is now less net short, but given that it is still in negative territory, the SSI signals that the current move over in USDJPY could be limited.

Kathy Lien is the Chief Currency Strategist at FXCM.