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Sentiment towards the Japanese yen currency is once again changing. Last week an explosive move in the yen took place against a number of majors and cross pairs. Now is a great time to check out how traders feel about some of the major three metals, as they look for contrarian trading signals via sentiment readings.
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.
AUDJPY – Bull Trend
According to the ActivTrader Market Sentiment tool the majority of traders are bearish towards the AUDJPY pair despite a major recovery from the lows of last week and a return of yen weakness.
The ActivTrader Market Sentiment tool shows that 67 percent of traders are expecting more downside in the risk sensitive pair. Given that the bearish bias is growing I am concerned we are going to see another big leg higher.
It should be noted that sentiment towards the AUDJPY is very important. The pair is seen as a proxy for risk-on and risk-off sentiment globally.
EURJPY – Continued Upside
The ActivTrader market sentiment tool shows that 71 percent of traders are bearish towards the EURJPY pair and the sentiment bias towards this particular pair is worsening.
The EURJPY pair could be set for aggressive gains ahead if we continue to see this type of large one-way sentiment bias, which often happens when retail is too one-sided.
It should be noted that the fundamentals of the yen and the euro are heavily driving this pair right now as the central banks are seen to be diverging in economic policy.
GBPJPY- Sentiment Driven
Market sentiment is still very bearish towards the GBPJPY pair, and we have seen a big change recently in traders turning bearish, following last week’s big downside correction.
The ActivTrader market sentiment tool showing that some 71 percent of traders currently bearish towards the GBPJPY pair, which is probably pointing to a continuation of upside gains this week.
I think it is worth noting that the sentiment bias for this pair has increased quite dramatically, meaning that the market could get caught being overly short the GBPJPY pair this week.
