Euro May Have Bottomed versus US Dollar
EURUSD – Trading crowds have turned aggressively net-short the Euro against the US Dollar, giving strong signal that the recent rally may be the major turning point we have been expecting for some time. Last week we prematurely called for a Euro bottom as there were early signs of a reversal. Yet short interest is now at its highest since October 25, at which point the EURUSD was trading at 1.3900 and was on its way above the 1.4000 mark.
Our SSI ratio stands at -2.00 as there are 2 traders long for every 1 short. Although past performance is no guarantee of future results, such one-sided extremes can often come at major turning points. Given where we stand in terms of overall market positioning, this could very well be the start of a bigger upside EURUSD correction.
The obvious caveat in this forecast is that the Euro is already 300 pips off of its lows, and the “easy part” of this pullback trade may already be over. In other words, the Euro rally could slow down and we could see sideways trade until further notice, limiting the appeal of fresh Euro/US Dollar long positions.
How do we interpret the SSI? Watch an FXCM Expo Presentation that explains the SSI.
--- Written by David Rodriguez, Quantitative Strategist for DailyFX.com
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