Sentiment towards the USD currency is growing more bullish despite the heavy losses the buck incurred last week. 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 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 – Bullish sign
According to the ActivTrader Market Sentiment tool, we are seeing sentiment remaining extremely bearish towards the EURUSD, which could allude to more price gains in the short-term this week.
The ActivTrader Market Sentiment tool shows that 73 percent of traders are expecting more downside in the euro against the US dollar right now. This is reading is in line with the previous trading week.
It should be noted that sentiment is currently in the extreme phase and retail is strangely on the right side of the trade. Sentiment is very crucial for the price of the EURUSD as we typically look to fade extreme sentiment biases.
GBPUSD – Still A Buy
The ActivTrader market sentiment tool shows that only 21 percent of traders are bullish towards the GBPUSD pair right now as it starts to trade at 14-month highs.
The negative sentiment bias is still good for dip buyers right now, as it certainly alludes to more upside trading eventually, however, it is important to state that the GBPUSD pair is close to breaking from its long-term bear trend technically.
I think we are about to see more gains in the GBPUSD in the near-term, however, the BOE rate decision may decide the overall fate of the GBPUSD pair this week.
USDJPY- More Stable
Market sentiment towards the USDJPY pair is rising, which is a bad sign for bulls in the short-term, especially since the USDJPY is currently retreating.
The ActivTrader market sentiment tool showing that just 57 percent of traders currently bullish towards the widely traded USDJPY pair. Sentiment was overly bullish at the start of the month.
I think it is worth noting that the more traders turn bullish or bearish then we should expect the opposite price effect to happen.