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Euro Likely to Trade Lower, but Large Breakdown Remains Unlikely

Euro Likely to Trade Lower, but Large Breakdown Remains Unlikely

David Rodriguez, Head of Product
Euro Likely to Trade Lower, but Large Breakdown Remains Unlikely

Why and how do we use the SSI in trading? View our video and download the free indicator here

EURUSD – A marked shift in retail forex trader positions warns that the Euro is likely to trade sideways or lower against the US Dollar. Last week we noted extremely one-sided sentiment as a key reason the EUR/USD exchange rate was likely to continue higher—clearly we were late and caught on the wrong side of a notable reversal. At the time our data showed a strong majority of open trader positions were short the EUR/USD.

Since last week, however, the retail traders in our sample have bought into Euro weakness and long interest has risen 19 percent. It is surprising to see that crowds remain marginally net-short; quite often a 200-plus point decline would be enough to force the crowd into a net-long position.

We would ideally see a stronger shift in retail trader positioning in order to call for a much larger EUR/USD breakdown. The more recent turn in sentiment nonetheless warns that the pair is likely to trade sideways to lower.

See next currency section: GBPUSD - British Pound Forecast Remains Firmly Bearish

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.