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Sentiment towards several key FX pairs is changing ahead of a number of important central bank rate decision this week. Now is a great time to check out some of the most extreme sentiment traders 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.
USDCAD – Ahead of the BOC
According to the ActivTrader Market Sentiment tool the majority of traders are now bearish towards the USDCAD pair. Ahead of the Bank of Canada rate decision tomorrow.
The ActivTrader Market Sentiment tool shows that 69 percent of traders are expecting more losses in the oil influenced currency pair. Given that the bearish bias is in play it is possible we will soon see more upside.
It should be noted that sentiment is very important for important for the USDCAD as it recently faced a huge technical rejection from the 1.4000 resistance level.
USDJPY – Intervention sentiment
The ActivTrader market sentiment tool shows that 79 percent of traders are bearish towards the USDJPY pair, this is a minor decline since last week.
The recent decline in the USDJPY from the highs above 150.00 was due to intervention from the Bank of Japan, hence traders are thinking that the central bank may be done.
I think we are in a tough spot if sentiment remains this bearish, it could hint that this pair is not done yet above the 150.00 resistance level.
EURGBP – Sentiment change
Market sentiment towards the EURGBP is starting to turn bearish, which is a bad sign for bears as one-sided sentiment skews tends to mean the opposite in terms of what traders are expecting.
The ActivTrader market sentiment tool showing that only 69 percent of traders currently bearish towards the EURGBP which could suggest more gains ahead for the euro against the British pound.
I think it is worth noting that this sentiment bias may have grown due to threats regarding the latest inflation and PMI data from the eurozone and the new British PM Rishi Sunak being instated.
