Euro May Outperform AUD, but not USD
EURUSD – Forex retail trading crowds remain steadily net-short the Euro against the US Dollar, and a broader US Dollar (ticker: USDOLLAR) rally suggests the crowd may be on the correct side of the trade. We most often use our Speculative Sentiment Index (SSI) as a contrarian indicator. That is, if everyone is short we typically go long. Yet last week we highlighted that our Speculative Sentiment Index-based ‘Tidal Shift’ strategy took a short position at $1.3325.
A key determinant of the next EURUSD move may ultimately be whether the Dow Jones FXCM Dollar Index breaks beyond 8-month highs. And though we do not go against our own SSI-based bias lightly, the crowd may be well-positioned if this is the US Dollar rally we have been waiting for. It is worth noting that the SSI makes us less bearish EURUSD than other dollar pairs, and indeed this author took a long position in the Euro/Australian Dollar pair as different SSI ratios pushed “Tidal Shift” to go long EURAUD.
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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