EURUSD – Retail FX traders remain short the Euro versus the US Dollar, but sentiment has eased away from a record extreme, suggesting that the beginnings of a potential sentiment extreme and major top are developing.
Trade Implications – EURUSD: The shift in the SSI ratio comes as price has dropped modestly, and the data show that it is traders closing shorts and going long. If this trend continues over the next several days, it will likely coincide with a further decline in price.
That being said, the data itself shows the dangers of trying to time a reversal: retail traders have been net-short EURUSD since it crossed above $1.2900 in July 2013.
As noted last week by David Rodriguez, Quantitative Strategist, while our view is shifting, we’ll wait for concrete signs of a turn in price and sentiment. For the SSI that means watching the Momentum2 trading system, which is designed to catch big turns in trend.
--- Written by Christopher Vecchio, Currency Analyst for DailyFX.com
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