Euro Reversal Versus US Dollar Seems Imminent
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Retail forex speculators have bought into recent US Dollar (ticker: USDOLLAR) declines against the Euro, British Pound, Japanese Yen, and Canadian Dollar—warning that the USD has further room to fall.
The Dow Jones FXCM Dollar Index has recently broken to fresh July lows, and indeed our technical forecast for the USD calls for further short-term weakness. The USDOLLAR is a measure of the US currency against the Euro, Australian Dollar, British Pound, and Japanese Yen. A technical breakdown warns of EURUSD, AUDUSD, and GBPUSD gains as well as USDJPY weakness.
Technical analysis studies aside, recent shifts in retail trader sentiment warns that the US currency may indeed have further room to fall. Our proprietary Speculative Sentiment Index data shows that there are 1.2 traders long EURUSD for every one long. Yet long positions have fallen 15 percent since last week while shorts are up 19 percent. An SSI flip to net-short EURUSD would give clear contrarian signal that the Euro may have set an important bottom.
--- Written by David Rodriguez, Quantitative Strategist for DailyFX.com
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