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Sentiment towards a number of Japanese yen pairs started to move following the sharp break sharply higher in the yen currency against the US dollar. Now is a great time to check out some of the most extreme sentiment traders who 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 of the strongest sentiment bias amongst the retail crowd right now. The sentiment skews suggest that current price trends in FX, stocks, and precious metals are breaking point and big moves may be nearing.
AUDJPY – Bias Building
According to the ActivTrader Market Sentiment tool a large majority of traders are now bearish towards the AUDJPY pair as it starts to edge towards the 90.00 level.
The ActivTrader Market Sentiment tool shows that only 37 percent of traders are expecting more upside in the leading the risk-sentiment pair. Given that bearish bias we usually see the market heading higher under these conditions.
It should be noted that sentiment is very crucial for the AUDJPY pair as it often seen as a good proxy for risk-on and risk-off sentiment in the foreign exchange market.
EURJPY – Rolling Over
The ActivTrader market sentiment tool shows that 61 percent of traders are bullish towards the EURJPY as it continues to race higher as the yen rallies rally.
The sentiment bias certainly alludes to more upside trading, with the one-sided sentiment growing so more than anything an explosion higher is likely.
I think we are about to see more gains in the EURJPY as traders are caught being extremely short and extremely bearish.
GBPJPY – Gains likely
Market sentiment towards the GBPJPY is getting more 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 30 percent of traders currently bullish towards the widely traded cross pair.
I think it is worth noting that the more traders turn bearish then the upside should only accelerate onwards from here.
