Euro Reversal Against US Dollar Seems Imminent
Retail FX trading crowds remain steadily long Euros against the US Dollar (ticker: USDOLLAR) as the EURUSD trades to fresh lows, and a contrarian view of crowd sentiment favors further declines. Crowds first turned net-long as the pair crossed below the $1.25 mark, but it serves to note that total long interest has fallen while short selling is on the rise—down 15 percent and up 18 percent since last week, respectively.
We often see important crowd capitulation at the end of major trends; our proprietary Speculative Sentiment Index data will often show that traders will go from net-long to net-short at major turning points. The fact that there are still 1.2 traders long for every short shows that we have not yet reached that point. Yet a flip in the SSI would warn of a near-term reversal.
Extremely one-sided speculative positioning warns that a deleveraging across financial markets could force significant Euro strength. Our SSI has begun showing the first signs that a reversal may be imminent, but timing the turnaround remains extremely difficult.
--- Written by David Rodriguez, Quantitative Strategist for DailyFX.com
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