Market sentiment analysis for USD ahead of the election:
- IG client sentiment data, which track the positioning of traders, are sending out a positive contrarian signal for the USD against the Euro ahead of the US elections.
- By contrast, there’s a bearish signal for the S&P 500 index of US stock prices.
Retail trader positioning data point to USD strength vs Euro
IG client sentiment data, which track the positioning of IG’s mostly retail clients, are sending out a positive contrarian signal for the USD against the Euro ahead of the results of the US elections, but a negative signal for the broad S&P 500 index of US stock prices.
At DailyFX we typically take a contrarian view to crowd sentiment, so if most traders are long an asset and their long positions are rising we see that as a negative signal – and vice versa. At the time of writing, just ahead of the elections, the figures suggest a bullish contrarian trading bias for the USD against the Euro but mixed signals for many of the other major USD pairs.
Looking at EUR/USD, the data show 53.93% of traders are net-long, with the ratio of traders long to short at 1.17 to 1. The number of traders net-long is 18.90% higher than yesterday and 57.52% higher than last week, while the number of traders net-short is 11.39% lower than yesterday and 39.99% lower than last week.
From a contrarian perspective, the fact traders are net-long suggests EUR/USD may fall. Moreover, traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger EUR/USD-bearish contrarian trading bias.
Source: DailyFX (You can click on it for a larger image)
The IG client sentiment data contrast with the latest figures from the Commitments of Traders report from the US Commodity Futures Trading Commission, which track the larger players in the market but are less up-to-date. These show that in the week to October 27 speculators continued to unwind their bearish positioning in the US Dollar as net shorts were cut by $1billion against G10 currencies. Most of this positioning change was tied to a cut back in Euro net longs ($1.5billion), which are now at their lowest since late July.
Euro aside, the IG data are also sending positive signals for the USD against the Swiss Franc and the New Zealand Dollar and neutral signals for the USD against the Australian Dollar, the British Pound and the Japanese Yen. The only negative signal for the US Dollar is against the Canadian Dollar.
Trader positioning data point to S&P 500 weakness
As for the S&P 500, the data show 45.28% of traders are net-long, with the ratio of traders short to long at 1.21 to 1. The number of traders net-long is 4.69% higher than yesterday but 3.22% lower than last week, while the number of traders net-short is 3.50% higher than yesterday but 3.72% lower than last week.
From a contrarian viewpoint, the fact traders are net-short suggests the index may continue to rise.Yet traders are less net-short than yesterday and compared with last week. These recent changes in sentiment warn that the S&P 500 may soon fall back despite the fact traders remain net-short.
— Written by Martin Essex, Analyst
Feel free to contact me via Twitter @MartinSEssex