Our sentiment-based forex trading strategies have very recently begun going long the US Dollar versus the British Pound and other key counterparts, as a sudden shift in sentiment points to further near-term gains for the US currency. Traders had previously bought aggressively into USD declines—giving us contrarian signal to buy the Euro/US Dollar. Yet the most recent turnaround leaves crowds pointing in exactly the opposite direction, and the abrupt shift leaves scope for further dollar pullbacks. The notable exception is the US Dollar/Japanese Yen pair, where our contrarian sentiment strategy points to further Japanese Yen rallies (USDJPY losses).
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