Sentiment towards the USD currency is changing following the recent banking trouble and this month’s rate decision from the United States. Now is a great time to check out some of the most extreme sentiment traders looking 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 are built 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 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 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 point and big moves may be nearing.
GBPUSD – Continued Upside
According to the ActivTrader Market Sentiment tool we are seeing sentiment remaining bearish towards the GBPUSD pair, which alludes to further price gains in the short-term.
The ActivTrader Market Sentiment tool shows that only 38 percent of traders are expecting more upside in sterling right now. This is a steady increase in negative sentiment from the previous week.
It should be noted that sentiment is currently in the worsening 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 – Buy mode
The ActivTrader market sentiment tool shows that only 24 percent of traders are bullish towards the EURUSD right now as the pair continues to move higher on the FX market.
The worsening bullish sentiment bias is good for continued price gains right now, as it certainly alludes to more upside trading eventually, however, it is important to state that the EURUSD pair is ready to breakout technically.
I think we are about to see more gains in the EURUSD in the near-term, however, the long-term trend change probably only happens above 1.2000.
USDINDEX – Major skew
Market sentiment towards the USD Index is rising, which is a good sign for bears in the short-term, as this means the majority is usually wrong.
The ActivTrader market sentiment tool showing that 91 percent of traders currently bullish towards the index of major currencies against the US dollar. Sentiment was over 80 percent bullish at the start of the month.
I think it is worth noting that major negative sentiment changes were also seen against the EUR and GBP pairs, so more downside in the US dollar index coming.