EURUSD – Retail forex trading crowds continue to sell the Euro against the US Dollar (ticker: USDOLLAR) as the EURUSD trades near multi-month peaks. Going against the crowd means buying into Euro rallies, and we would normally forecast further EURUSD gains based on our Speculative Sentiment Index data. Yet it’s important to understand retail crowd dynamics; traders tend to sell into strength and buy into weakness.
Such a counter-trend strategy most often does well during times of low market volatility, and going against the crowd seems ill-advised given that FX volatility expectations trade near their lowest levels in five years. The Dow Jones FXCM Dollar Index likewise continues to hold key support levels—serving as further warning that the Euro/US Dollar may continue to hold its recent trading range.
The previous US Dollar breakdown may in fact lead to further short-term consolidation, but it will be important to watch critical event risk given a highly-anticipated address by Fed Chairman Ben Bernanke in Jackson Hole, Wyoming. We view major surprises as relatively unlikely, but it seems clear that the US Dollar would react strongly to the slightest shifts in rhetoric.
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
To receive the Speculative Sentiment Index and other reports from this author via e-mail, send a message with subject line “Distribution List” to drodriguez@dailyfx.com; Contact David via Twitter at http://www.twitter.com/DRodriguezFX
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.
