GBPUSD – Forex trading crowds have aggressively sold into recent British Pound strength, giving us contrarian signal that the pair may continue its rally against the beleaguered US Dollar (ticker: USDOLLAR). Yet we hesitate to claim that a break above the hotly-contested $1.60 mark is entirely likely. Our Speculative Sentiment Index works well as a contrarian sentiment indicator when markets are trending. In other words—if the currency continues to hit fresh highs or fall to fresh lows, the SSI will most often give accurate short-term forecasts. When markets are choppy and stick to tight ranges, it will call for rallies and declines at exactly the wrong times.
So what’s the verdict? We’re keeping a close eye on whether the Dow Jones FXCM Dollar Index breaks below critical support at 9893. That may ultimately decide the fate of key US Dollar pairs.
How do we interpret the SSI? Watch an FXCM Expo Presentation that explains the SSI.
--- Written by David Rodriguez, Quantitative Strategist for DailyFX.com
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