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27 Jan 2014
Flash: EUR/USD forecast poll shows reflexivity theory at works - FXStreet
FXstreet.com (Barcelona) - Goncalo Moreira CMT, FXStreet Technical Analyst notes that the latest data for the FXStreet Currencies Forecast Poll, released on Friday, reveals an interesting behavioural pattern: in the last 51 weeks our poll participants got the market direction right 27 weeks, a little bit more than the 50% of the time.
Key Quotes
“This week, for the first time the average forecast coincides, furthermore, with the euro close price around 1.37. Interestingly enough, taken as a group, poll participants were correctly forecasting 1.37 four weeks ago, but they got it blatantly wrong (insist, as a group) forecasting 1.35 in their short-term views just one week before on January 17th.”
“A correlation of 54% is not enough to attribute the one-month-ahead prognosis with any forecast capacity. Worth mentioning, in turn, is the very high correlation the short-term views usually have with the one-week-ahead close price, which is above 80%.”
“Although last Friday's close exceeded the close from two weeks ago, when the data suggested that “more traders went from remaining cautiously bullish to openly enthusiastic”, this week's poll points to a lower rise in price. A rise in short-term expectation which is can be seen as value chasing price.”
“At a first glance, the predominant red colour on our dashboard hasn't changed. But comparing the relative frequency of bullish and bearish biases extracted from the most recent data and from the week before, the most notable change we notice is the increase in optimism in the short-term, now encompassing 28% of the polled participants after bottoming below 10% last week.”
“What does this means for traders? Despite seven weeks of alternation between positive and negative performances in the EUR/USD, never was the uniformity among participants so high as last Friday. Misinterpreted as a message to go with our friend the trend, we should have taken this consensus of opinion as a reason to adopt a contrarian approach. Unless this market leaves the 1.35-1.37 range behind we will be fooled by value chasing price. This is reflexivity theory at works.”
Key Quotes
“This week, for the first time the average forecast coincides, furthermore, with the euro close price around 1.37. Interestingly enough, taken as a group, poll participants were correctly forecasting 1.37 four weeks ago, but they got it blatantly wrong (insist, as a group) forecasting 1.35 in their short-term views just one week before on January 17th.”
“A correlation of 54% is not enough to attribute the one-month-ahead prognosis with any forecast capacity. Worth mentioning, in turn, is the very high correlation the short-term views usually have with the one-week-ahead close price, which is above 80%.”
“Although last Friday's close exceeded the close from two weeks ago, when the data suggested that “more traders went from remaining cautiously bullish to openly enthusiastic”, this week's poll points to a lower rise in price. A rise in short-term expectation which is can be seen as value chasing price.”
“At a first glance, the predominant red colour on our dashboard hasn't changed. But comparing the relative frequency of bullish and bearish biases extracted from the most recent data and from the week before, the most notable change we notice is the increase in optimism in the short-term, now encompassing 28% of the polled participants after bottoming below 10% last week.”
“What does this means for traders? Despite seven weeks of alternation between positive and negative performances in the EUR/USD, never was the uniformity among participants so high as last Friday. Misinterpreted as a message to go with our friend the trend, we should have taken this consensus of opinion as a reason to adopt a contrarian approach. Unless this market leaves the 1.35-1.37 range behind we will be fooled by value chasing price. This is reflexivity theory at works.”