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Euro Likely Set Important Bottom Against US Dollar

By , Quantitative Strategist
19 January 2012 18:15 GMT

ssi_table_story_body_Picture_5.png, Euro Likely Set Important Bottom Against US Dollar

Forex trading crowds are now their most short the Euro against the US Dollar (ticker: USDOLLAR) since the pair traded towards $1.42, giving contrarian signal that the EURUSD may have set an important bottom and could trade higher.

The total number of traders short the Euro/US Dollar has now risen to its highest since October 25, at which point the EURUSD was well on its way to trading towards $1.42. Given such one-sided sentiment, we expect that the EURUSD could continue trading higher and may have set an important bottom.

The obvious caveat to this analysis is the fact that the Euro is already more than 300 pips off of its lows. We may have already seen the bulk of the sharp reversal, in which case the pace of gains could slow and limit the appeal of fresh 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, Euro Likely Set Important Bottom Against US Dollar

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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19 January 2012 18:15 GMT