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Sentiment towards a number US dollar related currencies are changing fast after the recent speeches from Fed members 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.
AUDUSD – Changing Bias
According to the ActivTrader Market Sentiment tool continues to show that a bull bias has formed for the AUDUSD pair after the recent RBA interest rate hike.
The ActivTrader Market Sentiment tool shows that 39 percent of traders are expecting more downside in the AUDUSD pair. This is an increase from just 22 percent earlier this week.
It should be noted that sentiment is very crucial for the AUDUSD and its related pairs as we typically look at it for risk-on sentiment bias.
USDINDEX – Strong sentiment
The ActivTrader market sentiment tool shows that only 12 percent of traders are bearish towards the US dollar index as it starts to rally above the 103.00 level.
The sentiment bias certainly alludes to more upside trading, however, it is important to state that sentiment is very extreme levels and an unwinding in the greenback may soon happen.
I think we also have to consider that the US dollar index, which is the world’s reserve currency versus the top currencies is a key gauge of the strength of the greenback.
USDCHF – More bullish
Market sentiment towards the USDCHF pair is slightly bullish, due to the fact that a significant correction has taken place in the EURUSD pair recently.
Due to the inverse nature of the USDCHF and the EURUSD pair, the bias is not at all surprising. The ActivTrader market sentiment tool showing that only 62 percent of traders currently bullish towards the USDCHF right now.
I think it is worth noting that sentiment is not overstretched for the USDCHF and we should also consider this when trading the pair it has come too far too fast and a correction could be coming.
