Our sentiment-based strategies have had a difficult week of trading on choppy market conditions, but a view of the forest from the trees leaves us mostly in favor of US Dollar and Japanese Yen weakness.
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Weekly Summary of Forex Trader Sentiment and Changes in Positioning
Forex price action has been exceedingly choppy as of late, and our mostly trend-following SSI-based trading systems have done poorly as the Euro, Japanese Yen, and Australian Dollar stick to narrow trading ranges against the US Dollar.
The fact that the majority of retail traders remain long the US Dollar and Japanese Yen leaves us bearish the USD and JPY against major counterparts—with the exception of the Australian Dollar. Yet it’s difficult to call for aggressive EURUSD and USDJPY long positions (or EURJPY, for that matter) as traders show little interest in forcing major breakouts.
FX options markets show volatility prices remain elevated in JPY currency pairs, but low US Dollar volatility expectations warn that current choppiness could continue. In this type of environment we’ll remain nimble, trade with reduced leverage, and try to play the longer-term trends instead of getting sucked into short-term choppiness. Such a strategy leaves us mostly in favor of USD and JPY weakness until further notice.
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--- Written by David Rodriguez, Quantitative Strategist for DailyFX.com
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