Retail forex traders remain net-long the Euro against the US Dollar (ticker: USDOLLAR), but a significant turn in positioning pushed our “Tidal Shift” trading strategy to take a contrarian long position on the EUR bounce. Last week we wrote that a Euro turnaround seemed imminent, and we were admittedly early in our forecast. Yet much of the reasoning remains the same, and there’s reason to believe that this may be the start of a larger Euro bounce.
Our “Tidal Shift” strategy buys when crowds are their most bearish in the past 145 hours, and its trades have historically caught important market turns as sentiment swings. We see that total crowd long interest fell by 10 percent since last week, while short positioning jumped by a noteworthy 20 percent through the same stretch.
There are certainly no guarantees that this SSI-based forecast will prove accurate, but our technical outlook likewise points to a near-term EURUSD correction higher.
How do we interpret and trade with the SSI? Watch an FXCM Expo Presentation that explains the SSI.
--- Written by David Rodriguez, Quantitative Strategist for DailyFX.com
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Meet the DailyFX team in Las Vegas at the annual FXCM Traders Expo, November 2-4, 2012 at the Rio All Suite Hotel & Casino. For additional information regarding the schedule, workshops and accommodations, visit the FXCM Trading Expo website.
