Speculative Sentiment Report for April 6, 2006

• EUR/USD - Look for More Gains in EUR/USD
• GBP/USD - Ratio Flips to Net Short, Signaling Turn
• USD/CHF - Big Changes in Positioning, USD/CHF Ratio Confirms EUR/USD Signal
• USD/JPY - Ratio Near Parity, Range Trading to Continue

The ratio of longs to shorts in the EUR/USD is -2.04 which is within the extreme +/- 3 range. For the past week, the ratio has remained net short after having flipped from net long to net short last Thursday morning.  This has coincided perfectly with a 275 pip rally in the currency pair, illustrating the power of the SSI.  Trading has picked up significantly in the EUR/USD with total positions rising 12% from the previous week. Short positions have pared back slightly after hitting a record high yesterday afternoon.  In fact compared to last week, short positions have increased 34 percent while long positions fell 16%.  With the USD/CHF ratio also confirming the EUR/USD signal, the EUR/USD is poised for more gains.  This morning, we saw a pullback in the Euro following more neutral comments from ECB President Trichet.  According to the SSI, this should be perceived as a retracement in the context of a broader uptrend. 

The ratio of longs to shorts in the GBP/USD is -1.13 which is within the extreme +/- 3 range. The ratio flipped from net long to net short over the past week as the GBP/USD gained ground on the back of broad dollar weakness.   Total positions fell 6% with long positions declining by 31% and short positions rising by 40%.  This suggests that bulls may simply be switching sides.  For the time being, as long as the ratio continues to remain net short, the bias is for more gains in the GBP/USD. 

The ratio of longs to shorts in USD/CHF is 2.68, which is within the extreme +/- 3 range. The ratio flipped from short to long over the past week, coinciding with a modest sell-off in USD/CHF.  More importantly, the USD/CHF ratio now confirms the EUR/USD ratio which is a strong signal that more gains may be ahead for the EUR/USD.  Long positions increased a whopping 73% to a four month high while short positions fell 44% to levels not seen in close to a year.  This boosted total positioning by 10% as the latest downside breakout in the pair bring on more trading activity.  For as long as the ratio continues to remain net long, the bias is for more weakness in USD/CHF.

The ratio of longs to shorts in the USD/JPY is 1.01 which is within the extreme +/- 3 range and pretty much at parity. This is essentially the same levels that we were sitting at on Thursday of last week.  For the most part, USD/JPY has been flipping back and forth over the past few weeks as the currency pair remains in a tight trading range giving us little direction.  Unless we see a significant pickup in the ratio in one direction or another, the SSI continues to signal more range trading for USD/JPY.  Probably due to a lack of significant activity, over the past week, total positions have fallen by 7.5% as both bulls and bears reduce exposure.  Short positions fell by 5.6% while long positions fell by 9.3%. 

Kathy Lien is the Chief Currency Strategist at FXCM.