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EUR/USD Sentiment Analysis: Retail traders remain stacked on long

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Sentiment is important.

After all, price action in the short to medium term is highly driven by it.

A market’s fundamental constituents are buyers and sellers. Both have an expectation of what the price should be.

If the situation is bullish, sellers expect more, and buyers will pay more. Should there be an event that triggers apprehension, buyers expect to pay less for taking on risk, and likewise sellers are happy to get rid of the asset even at a lower price.

This is the reason in our decade of forex analysis, sentiment has always been an important factor.

In our report, it is important to understand that this is the sentiment of retail traders. It differs from the sentiment of the investors or participants of the market.

Hence we employ a different kind of analysis on it.

EURUSD Sentiment Chart

In the top chart above, we use the data from our Premium Analysis service’s Retail Sentiment Analysis to plot a sentiment chart.

The number represents the percentage of retail traders who are long on the EUR/USD. Therefore, anything above 50 means that the overall sentiment towards the currency pair is bullish.

We placed the EUR/USD price chart below to highlight the correlation between sentiment and price.

As you can see clearly in the first two sections, as sentiment becomes less bullish, the EUR/USD price becomes more bullish.

Alas, this is a nod to the ” most retail traders lose money at forex,” statement.

Retail traders remain stacked on long

We see that the current EUR/USD sentiment remains above 50.

There is no indication that it is turning bearish.

It is interesting to note that this is happening despite falling EUR/USD prices. This suggests that retail traders continue to bet against the bearish momentum.

If the contrarian hypothesis remains valid, we shall not be seeing a long-term bullish momentum at the moment.

As per our EUR/USD forecasts, the economic climate is currently positive towards the US. The European Central Bank remains open to easing measures, leading to some downside pressure for the euro currency.

Sentiment analysis is crucial

We track sentiment for 6 currency pairs on a weekly basis, and this is reported as the Retail Sentiment Analysis for premium members.

The last update as of publication is 5 Apr 21. Members should log in immediately to view the full report. This helps to give a better understanding of the market conditions.

Forex trading success is never about trading only a chart. Secondary indicators such as economic climate and sentiment contribute to the overall assessment.

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