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Forex Crowd Sentiment Favors Euro Strength, but US Dollar not Done Yet

Forex Crowd Sentiment Favors Euro Strength, but US Dollar not Done Yet

2012-10-04 15:10:00
David Rodriguez, Head of Product
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Retail forex traders continue buying aggressively into US Dollar (ticker: USDOLLAR) declines against the Euro, but the EURUSD may have difficulty breaking above $1.30 given a dovish European Central Bank.

EURUSD – Euro Forecast Remains Bullish, but $1.30 Resistance Critical

GBPUSDBritish Pound Trading Outlook Warns of Turn

USDJPYJapanese Yen Sentiment Points to Potential Top

USDCHFSwiss Franc Expectations Mixed as US Dollar Resilient

USDCADCanadian Dollar Outlook Points to Strength

GBPJPYCrowds Remain Long GBPJPY But Sentiment Warns of Turn

ssi_table_story_body_Picture_11.png, Forex Crowd Sentiment Favors Euro Strength, but US Dollar not Done Yet

Retail crowds have been consistently net-short EURUSD since the pair crossed above $1.24 on August 20, and we have accordingly taken a contrarian position in favor of Euro strength. That has continued into this week as we see EUR short interest grew 15 percent in the past 7 days, and the clear question becomes whether the Euro can break above the $1.30 mark.

Yet an especially dovish European Central Bank threatens to sap EURUSD strength, and indeed a break higher is by no means guaranteed despite clearly one-sided retail sentiment.

We further see evidence that crowds are relenting on other US Dollar pairs; short interest on the GBPUSD actually fell 15 percent, while USDJPY longs tumbled 26% on the week.

We will need to see a more substantive shift in sentiment to call for a larger US Dollar reversal, but we thus far see early signs that the EURUSD rally may soon come to an end.

ssi_table_story_body_Picture_10.png, Forex Crowd Sentiment Favors Euro Strength, but US Dollar not Done Yet

Written by David Rodriguez, Quantitative Strategist for DailyFX.com

--- To receive the SSI report and other research from this author, e-mail subject line “Distribution List” to drodriguez@dailyfx.com

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