Real Risk of Euro/US Dollar Bounce
EURUSD – Forex trading crowds are increasingly indecisive on the Euro/US Dollar pair—typically a sign that a currency pair is likely to stick to tight ranges until further sentiment extremes. The fact that traders turned aggressively net-long about 1000 pips ago leaves momentum to the downside. Yet the longer we see price consolidate in a narrow range, the more likely that the EURUSD set a short-term bearish extreme and a larger correction (to the topside) is likely.
The ratio of long to short positions in the EURUSD stands at -1.07 as nearly 52% of traders are short. Yesterday, the ratio was at 1.20 as 55% of open positions were long. When crowd sentiment flips from net-short to net-long, we typically watch for further gains. In detail, long positions are 4.0% lower than yesterday and 7.9% stronger since last week. Short positions are 23.3% higher than yesterday and 28.0% stronger since last week. The shift towards crowd selling gives us a bullish contrarian bias.
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