Euro Forecast Bearish, but Sharp Declines Unlikely
EURUSD – Forex trading crowds have bought aggressively into Euro/US Dollar losses, giving contrarian signal that the pair could hit further lows. Of course, a sharp drop in volatility expectations and a very short-term trend of higher lows suggests that fresh sell-offs are relatively unlikely. We might look to stand aside or trade short-term ranges until the New Year.
The ratio of long to short positions in the EURUSD stands at 1.31 as nearly 57% of traders are long. Yesterday, the ratio was at 1.20 as 54% of open positions were long. In detail, long positions are 2.3% lower than yesterday and 12.4% weaker since last week. Short positions are 10.6% lower than yesterday and 14.7% weaker since last week.
When trading crowds are long and continue growing further net-long, we often see subsequent EURUSD declines. Yet we see fresh lows as relatively unlikely on limited forex market volatility through the relatively illiquid end-of-year trading period.
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--- Written by David Rodriguez, Quantitative Strategist for DailyFX.com
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