Euro Forecast Shifts as Retail Crowds Capitulate

Retail FX trading crowds remain heavily net-short the Euro against the US Dollar (ticker: USDOLLAR), but a noteworthy shift in positioning has led one of our sentiment-based trading strategies to get short from $1.3150.

According to our Speculative Sentiment Index data, the majority of retail traders turned short Euro in early August as it crossed above the $1.23 mark, and our contrarian strategies called for further gains. Yet we’ve since seen short interest fall 17 percent since last week while longs are up a greater 30 percent.

We don’t often like to second-guess our long-standing contrarian bias to retail crowd positioning, but the important turn in sentiment since last week serves as early warning of a Euro turnaround.

--- Written by David Rodriguez, Quantitative Strategist for DailyFX.com

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