Euro Breakdown is the Real Deal - We Like Selling

EURUSD – Retail forex traders have bought aggressively into Euro weakness and sold into US Dollar strength—we remain plainly in favor of continued EURUSD declines.

Trade Implications – EURUSD: What a difference a week makes. Retail crowds are now their most long EURUSD since 2011 when the Euro was breaking substantively below the $1.40 mark. Our sentiment-based trading strategies continue to sell into EUR declines.

The risk to Euro short positions is obvious—the pair recently hit its biggest 5-day Rate of Change since February lows, and indeed our proprietary SSI data shows crowds are their most net-long since the same trough. Crowds are often most long at the bottom, and we can’t ignore the obvious risk of a bounce.

Yet volatility prices continue to surge. It seems “smart money” is positioned for further Greenback strength, and we like the odds/profit potential on fresh Euro short positions as retail crowds are on the opposite side of the trade.

--- Written by David Rodriguez, Quantitative Strategist for DailyFX.com

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