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Sentiment towards US dollar pairs is changing fast, following last week’s major move in the greenback, which saw the US dollar index suffer its greatest one week loss since November 2020. Now is a great time to check out how traders feel about the FX majors from a sentiment perspective.
Trading sentiment is most effective when retail traders are running counter trend, meaning that they are heavily leaning against established market trends and in increasingly large numbers. Additionally, once big sentiment skews build it can be a powerful sign that the retail crowd are being too one-sided.
Typically, market sentiment readings for an instrument that has reached around 75 to 80 percent is considered to be at an extreme level, while market sentiment readings over 80 to 95 percent is often a strong indication that the trade could be topping or about to reverse at any time.
I will now look at some the strongest sentiment bias amongst the retail crowd right now. Some of the sentiment skews suggest that current price trends in FX, stocks, and precious metals are breaking point and big moves may be nearing.
EURUSD – Canary in the coal mine
According to the ActivTrader Market Sentiment tool traders remain extremely bearish towards the EURUSD pair, despite last week’s major technical reversal, which saw the single currency stage a triple-digit recovery.
The ActivTrader Market Sentiment tool shows that 75 percent of traders are expecting more losses in the EURUSD. This large negative sentiment bias could be hinting that more pain for bears is coming.
I would suggest that the CPI report and the mood of stocks is likely to dominate the trading action ahead for the EURUSD.
GBPUSD – Lower High
The ActivTrader market sentiment tool shows that 63 percent of traders are bearish towards the GBPUSD pair, following its recent explosive breakout on the back of the Bank of England rate increase.
Traders are clearly expecting a minor correction in the GBPUSD pair, due to the fact that the technical are not clear because the pound is still making major lower highs on the daily chart.
In order for the bears to be right here, we probably need to see the 1.3480 level crack, and a pullback of around 100 points for the GBPUSD pair.
USDCHF – Inverse Relationship
Market sentiment towards the USDCHF pair remains extremely positive, which is not surprisingly given that traders are extremely negative towards the EURUSD pair.
The ActivTrades market sentiment tool showing that some 79 percent of traders currently bullish towards the USDCHF which again is not surprising given the inverse price relationship between the EURUSD and USDCHF.
I think USDCHF retail traders could be on the wrongs side of the market here, as indeed are the EURUSD bears.
