US Dollar Breakdown Attracts Crowd Buying - What's Next?
- EURUSD – Euro Traders Most Net-Short Since $1.3285 Top
- GBPUSD – British Pound Sentiment Hits Multi-Month Extremes
- USDJPY – Japanese Yen at Make-or-Break Levels
- USDCHF - Swiss Franc Outlook Turns Bullish
- USDCAD – Canadian Dollar Forecast Gives Reason for Pause
- GBPJPY – British Pound Outlook Remains Bearish vs JPY
Retail FX trading crowds have aggressively bought the US Dollar (ticker: USDOLLAR) weakness against the Euro, British Pound, Japanese Yen, and Swiss Franc. The sharp swing in sentiment warns against joining crowds in selling EURUSD strength.
Crowds are now their most aggressively short EURUSD since the pair set an important top of $1.3285 in May. We most often use our proprietary Speculative Sentiment Index as a pure contrarian indicator; if crowds are short we prefer to be long and vice versa.
Yet a clear caveat is that the SSI works best as a contrarian indicator through trending market conditions. Given that retail traders most often sell into strength and buy into weakness, going against the crowd works well if currencies continue hitting fresh highs or fresh lows. Yet it’s difficult to claim that the US Dollar could break substantially lower with FX volatility at its lowest levels in five years. We don’t necessarily want to join crowds in buying USD here, but we’re also not looking to sell as markets remain in consolidative ranges.