EURUSD – Retail forex trading crowds have bought aggressively into recent Euro/US Dollar declines, and there is distinct risk that the majority of traders will actually be long for the first time since the pair crossed above $1.2800. Why would that be significant? Quite often such important shifts in sentiment come at similarly important turns in price action. A crowd positioning flip to net-short preceded the Euro’s run towards $1.33, and the imminent shift could likewise mark the start of a new trend.
We won’t call for strong EURUSD losses until sentiment gives more definitive signal, however. Traders are still marginally net-short as our SSI ratio is at -1.08 (52% of traders are short). This is a substantial shift from last week as long positions have jumped 41.7% while short positions are down 20.8%. Again, it is difficult to forecast sharp declines when sentiment has not quite flipped to net-long. Yet the tide has seemingly turned, and indeed our SSI-based ‘Tidal Shift’ strategy on DailyFX PLUS remains short as of $1.3200.
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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