Retail Traders Short British Pound as it Tests Highs
Retail FX trading crowds remain their most net-short British Pound against the US Dollar (ticker: USDOLLAR) since it set a short-term top in late August. A purely contrarian view of retail crowd sentiment would normally make us bullish; if crowds are short we prefer to be long.
Yet it’s critical to note that the SSI works best as a contrarian indicator through trending markets. If currencies trade in tight ranges, the retail crowd is likely to be short at the top and long at the bottom. Exceedingly low FX market volatility warns that currencies could remain range-bound, and we hesitate to go against crowd sentiment and take a GBPUSD-long position in current market conditions
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
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