Analys från DailyFX
Forex Crowds Are Extremely Short Euro
–Retail FX traders are their most net-short EURUSD on record
–Our retail forex sentiment-based Momentum2 system strategy is long from $1.3649
– A contrarian view of crowd sentiment favors further gains
Retail forex traders have literally never been more net-short the Euro versus the US Dollar, and a contrarian view of crowd sentiment leaves us steadily in favor of further EURUSD gains. But what are the risks?
Forex Trading Crowds at their Most Net-Short Euro on Record
Source: FXCM Execution Desk Data
Our proprietary retail sentiment data shows that there are nearly 5 open orders short for every one that is long (a Speculative Sentiment Index ratio of -4.8). We saw a very similar sentiment extreme through late October when the Euro traded towards multi-year highs of $1.3830.
Yet this time around we’re seeing a slightly different dynamic: total long positions are actually at their lowest levels in nearly three years. Why does that matter? Put simply, there’s less aggressive selling this time around and more passive profit-taking. It suggests that the EURUSD could head higher as very few believe it can hit further highs. What are the technical risks?
Euro Trading Near Critical Technical Resistance at Fibonacci Levels and Mutli-Year Highs
Source: FXCM Trading Station Desktop, Prepared by David Rodriguez
One critical risk to the Euro rally is simple: the pair is coming up on significant technical resistance. The $1.3840 level represents the 61.8% Fibonacci retracement of the $1.4940-$1.2060 decline and likewise coincides with the multi-year peak.
Resistance doesn’t always hold, and it’s certainly possible that the pair presses to fresh highs. Yet technical risks are clear, and we would trade cautiously here given the risk of failure at key levels.
We noted yesterday one other factor that may be helping the Euro at these levels: forex seasonal trends tend to produce EURUSD gains into the end of the year.
Chart source: R. Forex Seasonality Studies for the month of December
The difficulty in using seasonality in trading is clear: how do you time and manage a position when all you know is that the Euro tends to rally in a given period? It’s more important to line up any such studies with other trade techniques to make it useful.
To that end we’ll continue to watch retail forex sentiment and our trading strategies for worthwhile trade opportunities in the high-flying Euro/US Dollar.
Follow any updates on the Euro and other currencies via this author’s e-mail distribution list.
Forex Correlations Summary
View forex correlations to the SP 500, SP Volatility Index (VIX), Crude Oil Futures prices, US 2-Year Treasury Yields, and Spot Gold prices.
Data source: Bloomberg. Chart source: R SEE GUIDE ON READING THE ABOVE CHART
— Written by David Rodriguez, Quantitative Strategist for DailyFX.com David specializes in automated trading strategies. Find out more about our automated sentiment-based strategies on DailyFX PLUS.
Contact and follow David via Twitter: https://twitter.com/DRodriguezFX
What’s inside:
- EURUSD broke the ‘neckline’ of a bearish ‘head-and-shoulders’ pattern, April trend-line
- Resistance in vicinity of 11825/80 likely to keep a lid on further strength
- Targeting the low to mid-11600s with more selling
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Coming into last week we pointed out the likelihood of finally seeing a resolution of the range EURUSD had been stuck in for the past few weeks, and one of the outcomes we made note of as a possibility was for the triggering of a ’head-and-shoulders’ pattern. Indeed, we saw a break of the ’neckline’ along with a drop below the April trend-line. This led to decent selling before a minor bounce took shape during the latter part of last week.
Looking ahead to next week the euro is set up for further losses as the path of least resistance has turned lower. Looking to a capper on any further strength there is resistance in the 11825-11880 area (old support becomes new resistance). As long as the euro stays below this area a downward bias will remain firmly intact.
Looking lower towards support eyes will be on the August low at 11662 and the 2016 high of 11616, of which the latter just happens to align almost precisely with the measured move target of the ‘head-and-shoulders’ pattern (determined by subtracting the height of the pattern from the neckline).
Bottom line: Shorts look set to have the upperhand as a fresh month gets underway as long as the euro remains capped by resistance. On weakness, we’ll be watching how the euro responds to a drop into support levels.
For a longer-term outlook on EURUSD, check out the just released Q4 Forecast.
EURUSD: Daily
—Written by Paul Robinson, Market Analyst
You can receive Paul’s analysis directly via email bysigning up here.
You can follow Paul on Twitter at@PaulRobinonFX.
Why and how do we use IG Client Sentiment in trading? See our guide and real-time data.
EURUSD: Retail trader data shows 37.3% of traders are net-long with the ratio of traders short to long at 1.68 to 1. In fact, traders have remained net-short since Apr 18 when EURUSD traded near 1.07831; price has moved 9.6% higher since then. The number of traders net-long is 15.4% lower than yesterday and 16.4% higher from last week, while the number of traders net-short is 0.4% higher than yesterday and 10.5% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EURUSD prices may continue to rise. Positioning is more net-short than yesterday but less net-short from last week. The combination of current sentiment and recent changes gives us a further mixed EURUSD trading bias.
— Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com
Follow him on Twitter at @CVecchioFX
To be added to Christopher’s e-mail distribution list, please fill out this form
Why and how do we use IG Client Sentiment in trading? See our guide and real-time data.
GBPUSD: Retail trader data shows 38.2% of traders are net-long with the ratio of traders short to long at 1.62 to 1. In fact, traders have remained net-short since Sep 05 when GBPUSD traded near 1.29615; price has moved 3.4% higher since then. The number of traders net-long is 0.1% higher than yesterday and 13.4% higher from last week, while the number of traders net-short is 10.6% lower than yesterday and 18.3% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBPUSD prices may continue to rise. Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current GBPUSD price trend may soon reverse lower despite the fact traders remain net-short.
— Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com
Follow him on Twitter at @CVecchioFX
To be added to Christopher’s e-mail distribution list, please fill out this form
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