Not at all It is a very interesting picture. Retail traders like to pick tops and bottoms in the market (or fade the trend). The last time USD/JPY positioning was this extreme was when the BOJ intervened (helping out a lot of retail traders. Positioning in USD/CAD and USD/CHF is also extreme, and unsurprisingly we're at significant support/resistance levels for both with USD/CHF testing record lows and USD/CAD at an important support level. So traders are trying top pick a bottom on both of these as well.
Since the currency markets are driving gains in equities, the same is happening on the other side of the fence... sounds like we're building an explosive situation to go either one way or another...
Jason, did you guys ever conduct a scientific approach with regards SSI ? How significant is SSI ? I think you guys actually profit a lot from being principal to every transaction and using SSI for your own modeling, aren´t you ?
I haven't seen any data put together on how significant SSI is and it's by no means 100% perfect. SSI tends to work best as a contrarian indicator when the market is trending. When volatility dies down and the market ranges, SSI probably won't work as well. Take a look at the graph below DailyFX put together for USD/JPY SSI over a longer period. Retail traders have been net long since Juen of this year while USD/JPY has dropped from 83. The green bars indicate positioning is net long, red bars indicate positioning is net short. The black line is the USD/JPY rate. You can see a drop in long position when the BOJ intervened. Most likely profit taking by traders. I find USD/CHF SSI to be even more impressive as a contrarian indicator. Long positioning consistently increases from June until now, while USD/CHF continues to decline. Source: http://www.dailyfx.com/technical_analysis/sentiment/?technicalSentiment=USD/CHF With NDD forex execution, FXCM is not profiting from trader losses, but rather earning a pip mark-up on each transaction (in essence a commission). This removes the conflict which arises from your broker making the market. I've also heard that we plan to add the SSI indicator to the Strategy Trader platform, but not timeframe as of yet when this will be completed.
a better play right now is XAG/JPY or XAU/JPY as you get the rise of gold/silver against the possibility of intervention with the BoJ adding to your gains.
@ Jason, Thanks for graphs, interesting. Yet your company's analysis are bearish on Yen, FT suggests that Yen is undervalued. IMO it ain't a drastically bad idea to go against the trend in DollarYen as technical reasons are pretty sound for a bounce making risk to reward very favourable IMO, unlike in case of shorting Gold.
Btw DailyFX does keep on recommeding buying UC, selling AU both near major levels, so it is not surprise that graph looks that way.
I am mobile now so can't post a chart maybe somebody will do it for me, on monthly chart connect the Hi of Aug 08 with Apr 09 price broke out of falling wedge, then failed & now sitting on top of broken wedge's upper TL. Flush is becoming more likely technically speaking to all time Lo of high 79s. Volckner spoke about not creating panic around USD, how they can implement this is not known at present, especially with continuous hints at another round of QE. As far as I understand it Japan has the power to match US level of QE in an attempt to weaken Yen, as far as they are concerned it is too high because of speculation & not supply & demand based on economic developments, many analysts believe Yen is undervalued. I believe Japan will do what they think is right, which currently stands at Yen too high. I have traded many divergence based set ups & this monthly one is book perfect IMO.