Retail traders are their most aggressively net-long the US Dollar (ticker: USDOLLAR) against the Canadian Dollar since the USDCAD traded towards significant lows near C$0.9800, and such one-sided positioning warns against buying into such sharp declines. There are nearly 4 retail traders long USDCAD for every 1 that is short. We most often take a contrarian view of retail sentiment, and the SSI currently points to further USDCAD declines.
As with the USDJPY, however, we believe that retail traders may actually catch important bottoms when sentiment is at extremes. We will keep a close eye for any signs of crowd capitulation and confirmation of a bottom. In the meantime, however, we believe it is imprudent to join crowds in going long USDCAD.
How do we interpret and trade with the SSI? Watch an FXCM Expo Presentation that explains the SSI.
--- Written by David Rodriguez, Quantitative Strategist for DailyFX.com
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