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Retail traders shooting theirselves on the foot

EURUSD Tech analysis by Simon Kazinsky on 03:06 April 10, 2018 EST

EURUSD is holding above major support at 1.21 provided by both a multi year long term moving average an an ascending trendline that has not been broken for almost one and a half years. Yet, retail traders are piling on shorts according to data compiled by Forex Status from multiple fx brokers at a ratio of 60 traders selling the pair for every 40 buying the single currency against the dollar.

Equities and the currency in which are denominated are usually invertedly correlated. This is most notorious in countries where currencies are in the process of being debased such as Venezuela or, in a more subtle manner, the UK. Since US stocks appear to be setting a top and the central bank is raising base rates while winding down QE there is a good chance that, at some point, the dollar will bounce back taking EURUSD down in the process. However that moment has not yet arrived and we need to see EURUSD breaking below 1.21 to give credibility to the notion that a new wave up for the buck is underway.

The British pound is still in a sloppy uptrend and would need to surrender the 1.37 to consider a resumption of the bearish long term trend in GBPUSD while the japanese yen would have to be sold for 110 or less to confirm the bullish case for the US buck. Needless to say that retail traders are betting on USD strength on each of these pairs while there is no signal of that happening yet.

For now, being long EURUSD appears the only reasonable bet from a technical perspective. If your fundamental view disagrees with this perhaps it is time to wait until a clear sell signal emerges.