Sentiment towards a number of currency pairs is changing as we approach the Christmas holiday period. 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 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 – Extremely Bearish
According to the ActivTrader Market Sentiment tool a large amount of traders are still bearish towards the EURUSD despite the recent run above the level.
The ActivTrader Market Sentiment tool shows that only 25 percent of traders are expecting more upside in the single currency This is another large increase since the previous trading week.
It should be noted that sentiment is very crucial for the EURUSD pair as we typically look to fade extreme sentiment biases in the stock trading industry.
GBPUSD – Warning Signs
The ActivTrader market sentiment tool shows that 56 percent of traders are bullish towards the GBPUSD as it continues to crash lower.
The sentiment bias certainly alludes to a reversal in downside trading, however, it is important to state that the bearish trend remains strong still.
I think we also have to consider that the GBPUSD pair is also being weakened by cross flows from the EURGBP pair, which is clearly harming the upside in the British pound.
AUDUSD – More bullish
Market sentiment towards the AUDUSD pair is getting more bullish, which is a bad sign for buyers as one-sided sentiment skews tends to mean the opposite in terms of what traders are expecting.
The ActivTrader market sentiment tool showing that some 61 percent of traders currently bullish towards the AUDUSD currency pair right now.
I think it is worth noting that the only when traders start to turn bullish then the downside should start to pick-up.