Sentiment towards a number of Canadian dollar-related pairs is changing fast, following the recent Bank of Canada policy meeting. 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 is being too one-sided.
Typically, market sentiment readings for an instrument that has reached around 75 to 80 percent are considered to be at an extreme level, while market sentiment readings over 80 to 95 percent are 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 biases amongst the retail crowd right now. Some of the sentiment skews suggest that current price trends in FX, stocks, and precious metals are breaking points and big moves may be nearing.
USDCAD – Neutral Bias
According to the ActivTrader Market Sentiment tool continues to show that a neutral sentiment bias has formed for the USDCAD pair despite a strong higher in the value of oil prices.
The ActivTrader Market Sentiment tool shows that only 53 percent of traders are expecting more upside in the single currency The sentiment has not increased since the Bank of Canada policy meeting.
It should be noted that sentiment is very crucial for the USDCAD pair as we typically look to fade extreme sentiment biases against commodity related currencies.
AUDCAD – Sentiment skew
The ActivTrader market sentiment tool shows that only 7 percent of traders are bullish towards the AUDCAD pair as it starts to build upside traction above the 0.9500 level.
The sentiment bias certainly alludes to more downside trading, however, it is important to state that 7 percent bullish sentiment is a very reading levels and an unwinding may soon happen.
I think we also have to consider that the AUD pair is a risk-on currency and the re-opening of China is very bullish for this currency pair. More so than the Canadian dollar.
EURCAD – Huge bear bias
Market sentiment towards the EURCAD pair has at a huge one-way bias, with a major bearish bias right now that would allude to more upside trading as shorts get crashed even further.
The ActivTrader market sentiment tool showing that only 5 percent of traders currently bullish towards the kiwi right now, which is a huge signal for a continuation of more upside.
I think it is worth noting that sentiment is overstretched for the EURCAD, and we should also consider this when trading the pair, as one way sentiment also strongly suggests that a correction could be coming.