Why and how do we use the SSI in trading? View our video and download the free indicator here
USDCAD– Retail forex traders have sold aggressively into US Dollar strength versus the Canadian Dollar, and indeed our data shows that traders are at their most net-short since at least 2011. Our data shows there are a whopping 4.2 open positions short for every long—81 percent are short.
A purely contrarian view of crowd sentiment would leave us watching for further USD/CAD gains, but we would be remiss if we did not highlight the risk that we are at or near an important sentiment and price extreme. And indeed a quick scan of the data shows that the retail crowd is often most short at market tops and most long at market bottoms.
The obvious difficulty is that the extreme is by definition only obvious in hindsight. Heavily one-sided positioning warns that the USD/CAD could soon reverse, but we would need to see a material shift towards crowd buying before calling for a meaningful turnaround.
See next currency section: AUDUSD - Australian Dollar May Continue Lower versus US Dollar
Written by David Rodriguez, Quantitative Strategist for DailyFX.com
To receive the Speculative Sentiment Index and other reports from this author via e-mail, sign up for his distribution list via this link.
Contact David via
Twitter at http://www.twitter.com/DRodriguezFX
