Retail FX traders have remained heavily short the Euro against the US Dollar (ticker: USDOLLAR) since the pair traded above $1.24, and a purely contrarian view of crowd sentiment favors further EURUSD strength. Yet as we wrote in our sentiment-based Euro forecast last week, our SSI works best as a contrarian indicator to price action when markets are trending.
Low FX volatility warns that the Euro could continue within a tight range against the US Dollar, and indeed a mostly disappointing European Central Bank interest rate decision leaves short-term EUR risks to the downside.
Key existential threats to the Euro in September could indeed keep pressure on the EURUSD until further notice, and we hesitate to go against the retail FX crowd as they sell into sudden Euro strength.
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.
