Sentiment towards a number of currency pairs is changing, following last week’s major running for the buck on the FX market. 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 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 – Changing bias
According to the ActivTrader Market Sentiment tool continues to show a large majority of traders are still bearish towards the EURUSD, a sit starts to move away from the highs of the year.
The ActivTrader Market Sentiment tool shows that only 37 percent of traders are expecting more upside in the single currency This is actually a welcome increase from 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.
USD INDEX – Huge extreme
The ActivTrader market sentiment tool shows that 94 of traders are bullish towards the buck as it starts to recover in early week trading after a death cross got into swing last week.
The sentiment bias certainly alludes to more downside trading, however, it is important to state that 94 percent bullish sentiment is reaching extreme levels and an unwinding may happen soon.
I think we also have to consider that the USD is probably oversold and that traders become too bearish. Retail could be right on this occasion.
USDJPY – Major change
Market sentiment towards the USDJPY has seen a huge change since last week as the risk sensitive pair falls below the 129.00 level.
The ActivTrader market sentiment tool showing that 91 percent of traders currently bullish towards the USDJPY currency pair right now, which is a huge worry for a continuation of more losses.
I think it is worth noting that sentiment was basically neutral last Friday, and a huge flip in sentiment has happened which strongly suggests more losses are coming.