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Euro To Weaken Further Despite Oversold Signal

Euro To Weaken Further Despite Oversold Signal

2012-05-17 17:07:00
David Song, Strategist
ssi_eur-usd_body_ScreenShot001.png, Euro To Weaken Further Despite Oversold Signal

EURUSD - The ratio of long to short positions in the EURUSD stands at 1.69 as nearly 63% of traders are long. Yesterday, the ratio was at 1.62 as 62% of open positions were long. In detail, long positions are 1.1% higher than yesterday and 9.0% stronger since last week. Short positions are 2.9% lower than yesterday and 19.8% weaker since last week. Open interest is 0.4% weaker than yesterday and 3.1% below its monthly average. The SSI is a contrarian indicator and signals more EURUSD losses.

Although the relative strength index on the EURUSD continues to show an oversold signal, we expect to see further declines in the exchange rate until the oscillator crosses back above 30. As the EURUSD comes up against the 23.6% Fibonacci retracement from the 2009 high to the 2010 low around 1.2640-50, it seems as though we’re seeing soft support ahead of the yearly low (1.2623), but the bearish sentiment surrounding the single currency may gather pace in the days ahead as European policy makers preserve a reactionary approach in addressing the sovereign debt crisis. At the same time, it seems as though the European Central Bank is moving away from its non-standard measures as they’ve had a limited impact in addressing the risks surrounding the region, and the weakening fundamentals reinforce a bearish forecast for the EURUSD as the region remains at risk for a prolonged recession.

How do we interpret the SSI? Watch an FXCM Expo Presentation that explains the SSI.

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong

To be added to David's e-mail distribution list, send an e-mail with subject line "Distribution List" to dsong@dailyfx.com.

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