Sentiment towards the USD currency is changing ahead of a number of key events on the economic calendar. 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.
USDCAD – Going bullish
According to the ActivTrader Market Sentiment tool we are seeing sentiment remaining extremely bearish towards the USDCAD, which alludes to price gains in the short-term.
The ActivTrader Market Sentiment tool shows that 84 percent of traders are expecting more downside in the greenback against the Loonie right now. This is another big increase since 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 Loonie as we typically look to fade extreme sentiment biases.
NZDUSD – Buy sentiment
The ActivTrader market sentiment tool shows that only 76 percent of traders are bullish towards the NZDUSD pair right now as it continues to be dragged lower by inflation expectations.
The bullish sentiment bias is bas for dip buyers right now, as it certainly alludes to more downside trading eventually, however, it is important to state that the NZDUSD pair is in a long-term bear trend technically.
I think we are about to see more losses in the NZDUSD in the near-term, however, the FED meeting may decide the overall fate of the NZDUSD pair.
USDJPY – One Way
Market sentiment towards the USDJPY pair is sinking, which is a bad sign for bulls in the short-term, just hours before the upcoming Bank of Japan central bank policy decision.
The ActivTrader market sentiment tool showing that just 14 percent of traders currently bullish towards the widely traded USDJPY pair. Sentiment was over 30 percent 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.
