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Sentiment towards a number of key global indices is becoming extremely volatile as the Ukraine situation continues to drive massive moves in financial markets. Now is a great time to check out how traders feel about the key indices 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.
GBPUSD – More Downside
According to the ActivTrader Market Sentiment tool traders a large majority of traders are now bullish towards the GBPUSD, despite sterling suffering one of the strongest down days in years yesterday.
The ActivTrader Market Sentiment tool shows that 74 percent of traders are expecting more gains in the GBPUSD pair. This large one-way positive sentiment reading has increased since last week and is strongly warning that more downside coming.
I would suggest that with the GBPUSD pairs sensitivity to the Ukraine situation and stock declines that we could see a rapid decline coming in sterling, which could expect beyond most people’s expectations.
EURUSD – Bullish Tilt
The ActivTrades market sentiment tool shows that 774percent of traders are bullish towards the euro, following its recent price plunge below the 1.1000 level and now towards the 1.0800 technical area.
Traders are still expecting a recovery, despite the EURUSD pair moving into the historical low end of its recent trading range, which is between the 1.0500 and 1.1000 levels.
In order for the bulls to be right, we really need to see some resolution in talks between Russia and Ukraine, which looks very unlikely right now.
USDJPY – Short Squeeze
Market sentiment towards the USDJPY pair is extremely bearish, which is not very surprisingly given that the Ukraine situation has caused a total collapse in most risk-on assets and Asian stocks.
The ActivTrader market sentiment tool showing that some 84 percent of traders currently bearish towards the USDJPY pair, however, the USDJPY will not fall, even with traders shorting in abundance.
I think that the current sentiment reading is a huge, short squeeze, as there is significant scope for further upside, so what out for a break above 116.00 this week.
