Sentiment towards a number of major currencies is starting to change after a notable breakout in the US dollar index last week, following last week’s huge bullish reverse in the buck. 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.
EURUSD – Getting Bad
According to the ActivTrader Market Sentiment tool the majority of traders are still bullish towards the EURUSD pair despite the recent crash and burn below parity, and then to a fresh 2022 low.
The ActivTrader Market Sentiment tool shows that 70 percent of traders are expecting more upside in this heavily traded currency pair. Given that the bullish bias is growing I think we could well see more losses this week.
Should we see bullish sentiment increasing we could reasonably expect to see the 0.9900 support level tested, at a very minimum.
GBPUSD – Reaching Extreme
The ActivTrader market sentiment tool shows that 72 percent of traders are bullish towards the British pound against the US dollar and the sentiment bias towards this particular currency is actually getting more bullish.
The large one-way sentiment bias, which often happens when retail is too one-sided causes price moves to accelerate in one direction, such as we saw last week when GBPUSD touched its lowest level of 2022 so far.
It should be noted that the fundamentals of the UK economy look bleak, so being long sterling is also very risky in this type of environment.
USDJPY – Widening Bias
Market sentiment is still very bearish towards the USDJPY pair, following last week’s big upside move towards the best levels of the year as the greenback started to breakout higher.
The ActivTrader market sentiment tool showing that some 84 percent of traders currently bearish towards the USDJPY, which is probably pointing to a continuation of upside gains this week.
I think it is worth noting that the sentiment bias for the USDJPY pair is alluding to a potential test back towards the yearly highs for USDJPY.