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EUR/USD, USD/JPY, GBP/USD market sentiment analysis

2024-07-03

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In trading, the temptation to follow the prevailing trend is strong – buying in bullish phases and selling in bearish phases. But experienced investors know that the real potential often lies in taking a contrarian approach. Resources like the IG Client Sentiment Indicator provide valuable insights into the collective mindset of the market, potentially highlighting situations where extreme bullishness or bearishness could signal a reversal.

However, contrarian signals should not be considered foolproof indicators, and their best use is to supplement a comprehensive trading approach. Below is an analysis of IG client sentiment for three currency pairs: EUR/USD, USD/JPY and GBP/USD.

Bearish outlook for EUR/USD strengthens

Recent retail trading data shows that 57.14% of traders hold long positions in EUR/USD, with the ratio of long traders to short traders being 1.33. The number of long positions has increased by 26.08% since yesterday and by 6.42% since last week. Conversely, short positions have decreased by 18.26% since yesterday and by 15.81% since last week.

Given our contrarian approach to market sentiment, this preponderance of long positions suggests that the EUR/USD price could continue to fall. The current sentiment and recent changes combine to strengthen our bearish outlook for EUR/USD.

USD/JPY Turning Toward Lower Prices?

Analysis of retail trader behavior shows that only 18.06% of traders are net long USD/JPY, with short positions outnumbering long positions by a ratio of 4.54:1. We observe increases in both net long positions (up 7.83% since yesterday and 16.31% week-over-week) and net short positions (up 1.25% since yesterday and 7.93% week-over-week).

Our contrarian strategy typically views net short sentiment as bullish for USD/JPY. However, the recent reduction in net short positions relative to long positions suggests a potential shift. This change in sentiment pattern could signal an imminent downside reversal in USD/JPY prices, despite the overall net short position in the market.

Stronger Bearish Outlook for GBP/USD

Recent retail trading data shows that 53.98% of traders hold long positions in GBP/USD, with long traders outnumbering short traders by 1.17 to 1. The number of long positions has increased by 12.28% since yesterday and 21.58% over the past week. Conversely, short positions have decreased by 5.48% since yesterday and 18.64% over the week.

Given our contrarian position on market sentiment, this dominance of long positions suggests that GBP/USD prices may continue to fall. Current sentiment, combined with recent positioning changes, strengthens our bearish outlook for GBP/USD.

The above information is provided by special analysts and is for reference only. CM Trade does not guarantee the accuracy, timeliness and completeness of the information content, so you should not place too much reliance on the information provided. CM Trade is not a company that provides financial advice, and only provides services of the nature of execution of orders. Readers are advised to seek relevant investment advice on their own. Please see our full disclaimer.

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EUR/USD, USD/JPY, GBP/USD market sentiment analysis

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