EURUSD – Forex trading crowds continue to sell aggressively into Euro strength versus the US Dollar (ticker: USDOLLAR), and such one-sided sentiment suggests a EURUSD breakout may be imminent. Indeed, the Dow Jones FXCM Dollar index trades below critical congestion lows and suggests the Euro may soon trade towards fresh peaks.
Our Speculative Sentiment Index tends to work best as a contrarian indicator during strong trending markets. In other words: if a currency pair continues to hit fresh lows or highs, it is most often best to go against trading crowd sentiment. Recent narrow ranges have made for difficult conditions for our SSI-based trading strategies, but today’s big moves suggest we may be at the start of a fresh dollar downtrends.
As far as the Euro goes, we will continue to watch key resistance at $1.3236 and eventually trend channel highs near $1.3300. A break could define a renewed uptrend and a run towards year-to-date highs near the $1.3500 mark.
How do we interpret the SSI? Watch an FXCM Expo Presentation that explains the SSI.
--- Written by David Rodriguez, Quantitative Strategist for DailyFX.com
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