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Sentiment towards a number of key global indices is changing fast after Russian invaded Ukraine this week. Now is a great time to check out how traders feel about key safe haven and closely linked asset classes to the eurozone economy.
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 – Bullish Skew
According to the ActivTrader Market Sentiment tool traders are, in the majority, bullish towards the EURUSD pair, following its recent plunge towards the 1.1100 level, and subsequent recovery back above the 1.1200 level.
The ActivTrader Market Sentiment tool shows that 62 percent of traders are expecting more gains in the EURUSD pair. The majority positive sentiment reading has decreased since last week and could be hinting that more pain for bears is coming.
I would suggest that until the Ukraine situation is resolved the EURUSD pair is going to be a difficult long trade and calling a major market low is going to be very difficult.
Euro50 – Still Bullish
The ActivTrader market sentiment tool shows that 68 percent of traders are bullish towards the EuroStoxx50, following its recent price plunge on the Ukraine invasion news towards the 3,750-support level.
Traders are still expecting more upside in the EuroStoxx50, despite the index making a near 200-point recovery after the sanctions on Russia were not as severe as some had expected.
In order for the bulls to be right, we really need to see the implications on the global economy from the Ukrainian situation, and also if the Ukrainian invasion is going to be bloody.
USDJPY – Bears Crushed
Market sentiment towards the USDJPY pair is extremely negative, which is not very surprisingly given that the Ukraine news has caused traders to flock to safe-haven currencies such as the yen and the Swiss franc.
The ActivTrader market sentiment tool showing that some 77 percent of traders currently bearish towards the USDJPY pair as the Ukraine news caused havoc with financial markets on Thursday.
I think that the current sentiment reading is giving out a major bullish signal, as there is significant scope for further upside as the USDJPY pair has regained all of its losses this week.
