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Sentiment Warns Euro Breakdown Could be Real

Sentiment Warns Euro Breakdown Could be Real

2011-09-01 15:15:00
David Rodriguez, Head of Product
ssi_eur-usd_body_Picture_6.png, Sentiment Warns Euro Breakdown Could be Real

EURUSD –A substantial shift in FX market sentiment has left traders net-long the EURUSD for the first time since the pair traded to 1.4100 on August 4. Normally we would say that this a strong contrarian signal that the pair could continue its decline. Yet there is likewise risk that the pair could hold multi-month triangle support near current price levels, and the SSI tends to do poorly as a contrarian indicator when currencies remain stuck in broad consolidative ranges. A key question is simple: does the EURUSD have enough traction to take out significant support?

The ratio of long to short positions in the EURUSD stands at 1.04 as nearly 51% of traders are long. Long positions are 32.6% higher than yesterday and an impressive 89.8% stronger since last week. All the while, short positions are a modest 13.5% higher than yesterday yet mostly unchanged since last week. The SSI is a contrarian indicator, and the fact that crowds have turned net-long EURUSD for only the second time this month gives us a cautiously bearish trading bias.

To receive future SSI reports and other research from author David Rodríguez, send an e-mail with subject line "Distribution List" to drodriguez@dailyfx.com.

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