Euro Could Bounce Despite Bearish ECB Decision on FX Sentiment
- EURUSD – Euro Could Recover Against US Dollar
- GBPUSD – British Pound Forecast to Bounce Further
- USDJPY – Yen Outlook Unclear on Mixed Sentiment
- USDCHF – Swiss Franc Shows Mixed Positioning, Outlook
- USDCAD – Canadian Dollar Forecast to Rally Further
- GBPJPY – British Pound Declines May Continue vs. JPY
Forex trading crowds have sold the US Dollar (ticker: USDOLLAR) into recent rallies, but we view fresh USD highs as unlikely into the final weeks of December and believe that the EURUSD and other pairs could bounce through short-term trading.
We typically use forex trading crowd sentiment as a purely contrarian indicator, but analysis of FX Options traders and futures positioning suggests that the US Dollar (ticker: USDOLLAR) may continue lower into year-end.
Speculators quite often close positions into the illiquid final weeks of the year and start of the New Year. Thus if most Non-commercial futures traders are currently long US Dollars, we could expect the USD to fall on a deleveraging across financial markets. Low FX Options market volatility expectations likewise support calls for USD pullbacks.
View an FXCM Expo presentation on the Speculative Sentiment Index for better understanding on how we use it in our trading.
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--- Written by David Rodriguez, Quantitative Strategist for DailyFX.com
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