Sentiment towards a number of key trading instruments is seeing big changes after the recent stock market sell-off and the pending FED meeting, where the US central bank is expected to provide clarity on the coming rate hike. Now is a great time to check out how traders feel about US dollar crosses from a sentiment perspective.
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.
Nasdaq – Risk Proxy
According to the ActivTrader Market Sentiment tool traders remain extremely bullish towards the Nasdaq, despite last week’s major selling in stocks, where many big name tech leaders suffered double-digit drops.
The ActivTrader Market Sentiment tool shows that 76 percent of traders are expecting more gains in the Nasdaq. This large positive sentiment bias could be hinting that more pain for bulls is coming.
Traders have been right about buying dips in US stocks for the last two years, but the question is, are they right this time?
Crude Oil – Counter Trend
The ActivTrader market sentiment tool shows that 76 percent of traders are bearish towards the Crude oil, following its recent pullback from multi-year highs, just under the $90.00 mark.
Traders are clearly betting that the downmove in stocks is going to turn into something worse, and that crude oil still has further room to run lower.
In order for the bears to be right here, we probably need to see stocks turning lower after today’s FED meeting, which is likely to be a big mover for risk assets.
EURJPY – Risk Barometer
Market sentiment towards the EURJPY pair is heavily negative, which is not surprisingly given that the euro is falling, and the yen has started to come into favour.
The ActivTrader market sentiment tool showing that some 69 percent of traders currently bearish towards the EURJPY pair, which again is not surprising given the current trading environment.
Usually, I am concerned with big sentiment bias, but I do actually feel that the EURJPY pair has scope for further losses, and I think the majority could be correct here.
