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Sentiment towards a number of commodity currencies is changing fast, following the recent run higher in oil and gold. Now is a great time to check out some of 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 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.
USDCAD – Neutral Bias
According to the ActivTrader Market Sentiment tool continues to show that a neutral sentiment bias has formed for the USDCAD pair despite a strong higher in the value of oil prices.
The ActivTrader Market Sentiment tool shows that only 52 percent of traders are expecting more upside in the single currency The sentiment has not increased from the previous trading week.
It should be noted that sentiment is very crucial for the USDCAD pair as we typically look to fade extreme sentiment biases in the stock trading industry.
AUDUSD – Weak sentiment
The ActivTrader market sentiment tool shows that only 31 percent of traders are bullish towards the AUDUSD pair as it starts to build upside traction above the 0.7000 level.
The sentiment bias certainly alludes to more upside trading, however, it is important to state that 31 percent bullish sentiment is reaching extreme levels and an unwinding may soon happen
I think we also have to consider that the AUDUSD pair is a risk-on currency and the re-opening of China is very bullish for this currency pair.
NZDUSD – Bear Bias
Market sentiment towards the NZDUSD pair has seen a big change since last week as the risk sensitive currency is trading with a major bullish bias right now.
The ActivTrader market sentiment tool showing that only 30 percent of traders currently bullish towards the kiwi right now, which is a huge signal for a continuation of more upside.
I think it is worth noting that sentiment is overstretched for the kiwi, and we should also consider this when trading the pair, as sentiment also strongly suggests that a correction could be coming.
