Euro Targets Lows as Forex Crowds Turn
Retail forex trading crowds have consistently bought the downtrodden Euro against the resurgent US Dollar (ticker: USDOLLAR), giving steady contrarian signal that the Euro/US Dollar exchange rate may hit fresh lows. Our proprietary Speculative Sentiment Index data shows that the retail crowd flipped net-long Euros as the pair dropped below $1.26; the crowd has otherwise been mostly net-short for much of the month of June as the Euro corrected off of multi-year lows.
The consistent push towards crowd Euro buying gives us confidence that the EURUSD may continue to fresh troughs, but a key stumbling block has been a clear correction higher for the Euro and lower for the US Dollar. Given substantial event risk with the ongoing European summit, we see scope for a larger breakdown. The clear caveat in our forecasts comes from exceedingly low volatility expectations as seen through FX options markets.
Low volatility makes large moves less likely, but conditions can and do change quite rapidly. There remain clear risks of a larger breakdown, and retail trader sentiment supports calls for Euro weakness.
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--- Written by David Rodriguez, Quantitative Strategist for DailyFX.com
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