Forex trading crowds are net-short the Euro against the US Dollar (ticker: USDOLLAR) for the first time since the pair crossed below $1.3000, and our contrarian sentiment indicator calls for continued EURUSD strength. This is a marked break from last week when our Euro forecast pointed towards $1.19.
Seasonal trends in forex markets historically show that pairs will make their highs and lows for the month at the beginning and end of the period. This implies that the Euro may have set its low for June on exactly the first of the month at $1.2290. This isn’t too far-fetched; the EURUSD set its May peak likewise on the May 1.
We believe that the clear longer-term downtrend remains intact—especially as we see speculative futures traders at their most net-short Euro in history. Given extremely bearish sentiment, any short-term Euro rallies may be seen as corrections (albeit sharp ones) within the broader downtrend.
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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