Sentiment towards a number of currency pairs is changing, following the recent US CPI release for the month of December. Now is a great time to check out the most extreme sentiment traders who look 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 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 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 – Overly Bullish
According to the ActivTrader Market Sentiment tool continues to show a large majority of traders are still bearish towards the EURUSD, despite its rally towards the 1.0850 level.
The ActivTrader Market Sentiment tool shows that only 21 percent of traders are expecting more upside in the single currency This is a 12 percent increase since the previous trading week.
It should be noted that sentiment is very crucial for the EURUSD pair as we typically look to fade extreme sentiment biases in the stock trading industry.
EURGBP – Sell sentiment extreme
The ActivTrader market sentiment tool shows that only 15 percent of traders are bullish towards the EURGBP as it continues to trade much higher towards the 0.8900 area.
The sentiment bias certainly alludes to more upside trading, however, it is important to state that 85 percent bearish sentiment is reaching extreme levels and an unwinding may happen soon.
I think we also have to consider that the USD is currently taking a beating and this sentiment bias we could soon see a nasty unwinding as traders become too bearish.
USDJPY – Strangely Neutral
Market sentiment towards the NZDUSD is getting more neutral which could indicate that the drubbing in the USDJPY pair is starting slow down as it falls below the 129.00 level.
The ActivTrader market sentiment tool showing that only 355 percent of traders currently bullish towards the USDJPY currency pair right now, which is not surprising as it crashes lower.
I think it is worth noting that the only when traders start to turn bearish then the upside should start to pick-up.
