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US Dollar Eyes Fresh Highs, but Caution Warranted on Illiquid Trading

By , Quantitative Strategist
15 December 2011 16:07 GMT

ssi_table_story_body_Picture_5.png, US Dollar Eyes Fresh Highs, but Caution Warranted on Illiquid Trading

Forex trading crowds continue selling the US Dollar (ticker: USDOLLAR) as the currency sets multi-month peaks. We use crowd sentiment as a contrarian indicator and expect that the USD could further strengthen through the end of 2011.

We expect that the US Dollar could hit fresh peaks into Friday’s close. Yet fresh USD long positions (EURUSD, GBPUSD shorts) look a bit risky as the risk of short-term correction is quite high. We expect limited volatility into the final two weeks of the year, and as such the USD may actually consolidate through the foreseeable future.

Speculators quite often close positions into the illiquid final weeks of the year and start of the New Year. According to most recent FX Options and Futures data, speculators were heavily net-long the USD. We could see the Greenback slump if leveraged traders cover their long positions.

View an FXCM Expo presentation on the Speculative Sentiment Index for better understanding on how we use it in our trading.

ssi_table_story_body_Picture_6.png, US Dollar Eyes Fresh Highs, but Caution Warranted on Illiquid Trading

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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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.
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15 December 2011 16:07 GMT