Sentiment towards several major currencies is becoming extremely volatile as the FED march policy decision approaches. Big moves are expected in the foreign exchange market after today’s decision. Now is a great time to check out how traders feel about the key indices of the eurozone economy.
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 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 are 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.
EURUSD – Bear Trend
According to the ActivTrader Market Sentiment tool, traders a large majority of traders are now bullish towards the EURUSD, despite the pair being in a protracted bear trend this year.
The ActivTrader Market Sentiment tool shows that 75 percent of traders are expecting more gains in the EURUSD pair. This large one-way positive sentiment reading has remained consistent and is strongly warning that more downside coming.
I would suggest that with the EURUSD pairs sensitivity to rate hikes from the FED should not be understated, and we could see a rapid decline coming in euro, which could extend beyond most people’s expectations.
GBPUSD – Bulls Crushed
The ActivTrader market sentiment tool shows that 76 percent of traders are bullish towards the sterling, following its recent price plunge below the 1.3700 level and now towards the 1.3000 technical area.
Traders are still expecting a recovery, despite the GBPUSD pair moving to a multi-year low, and breaking well under its established trading range, between the 1.3300 and 1.3800 levels.
In order for the bulls to be right, we really need to see the FED coming out more dovish later today, which considering inflation is rapidly rising, is extremely unlikely.
USDJPY – Pain Trade
Market sentiment towards the USDJPY pair is extremely bearish right now, which is not very surprisingly given that the pair has staged a rapid breakout to a five-year trading high.
The ActivTrader market sentiment tool showing that some 94 percent of traders currently bearish towards the USDJPY pair, marking a ten percent rise from last week.
I think that the current sentiment has all the hallmarks of a huge, short squeeze, as there is significant scope for further upside, with the 119.00 and even the 120.00 level possible.
