Euro May Rally Against US Dollar Despite ECB Rate Cut

Forex Positioning in the Euro-US Dollar Currency Pair

EURUSD – Forex traders are currently short the Euro-US Dollar currency pair, and a sharp drop in long positions from last week suggests that “crowd” sentiment is becoming increasingly one-sided. Today’s sharp rate cuts from the European Central Bank have likely played a part in EUR/USD bearish sentiment, as short positions have actually risen by 10.3 percent overnight. Yet increasingly extreme sentiment suggests that the Euro/US dollar may in fact head in the opposite direction. Tomorrow’s US Non Farm Payroll report may cause further volatility in all US dollar pairs, but as it stands, crowd forex sentiment favors short-term Euro/US Dollar strength. Our Speculative Sentiment Index-based forex trading signals recently closed Euro/US dollar long positions, but a further increase in short positions would likely lead our strategies to buy the Euro against the US dollar.

Written by David Rodríguez, Quantitative Analyst for DailyFX.com