Retail forex traders are once again net-long the US Dollar (ticker: USDOLLAR) versus the Euro, and the shift in sentiment gives us clear pause in our earlier calls for EURUSD weakness. We most often use our proprietary Speculative Sentiment Index as a contrarian indicator to price action; if the majority of retail traders are short EURUSD, we prefer to be long.
In fact, the number of traders short grew by 16 percent through the past week, while traders long fell by 4 percent. As a result we see that there are now 53% of traders in our sample are short EURUSD—the first time we’ve seen traders net-short in nearly two weeks.
Our technical forecast for the euro remains somewhat bearish. Yet we may need to wait for a noteworthy shift in retail FX trader sentiment before taking a strong stance in favor of EURUSD short positions.
--- Written by David Rodriguez, Quantitative Strategist for DailyFX.com
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