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Sentiment towards the USD currency is changing ahead of the upcoming rate decision from the United States. 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.
GBPUSD – More Up
According to the ActivTrader Market Sentiment tool we are seeing sentiment remaining bearish towards the GBPUSD pair, which alludes to price gains in the short-term.
The ActivTrader Market Sentiment tool shows that only 41 percent of traders are expecting more upside in sterling right now. This is a small bullish increase since the previous trading week.
It should be noted that sentiment is currently in the extreme phase and retail is currently on the wrong side of the trade. Sentiment is very crucial for the price of the GBP pairs as we typically look to fade extreme sentiment biases.
EURUSD – Sell sentiment
The ActivTrader market sentiment tool shows that only 43 percent of traders are bullish towards the EURUSD right now as it continues to be dragged lower by move higher in the US dollar.
The bullish sentiment bias is good for dip buyers right now, as it certainly alludes to more upside trading eventually, however, it is important to state that the EURUSD pair is in a long-term bear trend technically.
I think we are about to see more losses in the EURUSD in the near-term, however, the FED and meeting may decide the overall fate of the EURUSD.
USDJPY – Still falling
Market sentiment towards the USDJPY pair is falling, which is a good sign for bulls in the short-term, as this means the majority is usually wrong.
The ActivTrader market sentiment tool showing that only 33 percent of traders currently bullish towards the widely traded USDJPY pair. Sentiment was over 50 percent bullish at the start of the month.
I think it is worth noting that the more traders that turn bearish then we should expect the opposite price effect to happen.
