Euro Forecast Grows Bearish as Crowds Buy
Forex trading crowds have bought into recent Euro weakness against US Dollar (ticker: USDOLLAR), and a contrarian view of crowd sentiment points to further EURUSD declines. Last week we saw signs that the Euro may have set an important short-term top at $1.2440, and indeed a series of lower highs gives conviction in calls for a short-term reversal.
According to FXCM Execution Desk data, there are currently 1.2 retail traders long Euro/US Dollar for every one that is short. We typically wait for more one-sided sentiment before taking a more aggressive stance. Yet a bearish SSI-based bias lines up well with technical forecasts for Euro weakness below $1.2440.
Our retail sentiment-based trading strategies are not currently in a EURUSD position, but further crowd EURUSD buying could soon lead our contrarian “Trend Follower” and “Tidal Shift” systems to sell into Euro declines. Such trades would add conviction to our Euro/US Dollar-bearish forecast.
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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