Market sentiment analysis:
- Trader confidence is rising, benefiting riskier assets such as US shares but damaging safe havens like the US Dollar.
- However, there has been a jump in new long positions in USD/CAD, suggesting the Canadian Dollar is out of favor.
Trader confidence rising
Traders are increasingly opting for risker assets at the expense of safe havens despite EU restrictions on US travelers, the Western retreat from Afghanistan, Hurricane Ida hitting Louisiana and disappointing economic data from China and Japan.
The haven US Dollar has suffered in particular, perhaps because Federal Reserve Chair Jerome Powell was unexpectedly dovish last week when he spoke at the virtual Jackson Hole summit. However, retail traders have built up substantial long positions in USD/CAD over the past week, suggesting the Canadian Dollar is even more out of favor.
USD/CAD Price Chart, Daily Timeframe (April 16 – August 31, 2021)
Chart by IG (You can click on it for a larger image)
IG client sentiment data show 73.89% of retail traders are net-long, with the ratio of traders long to short at 2.83 to 1. The number of traders net-long is unchanged from yesterday but 28.03% higher than last week, while the number of traders net-short is unchanged from yesterday but 37.52% lower than last week.
Here at DailyFX, we typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests USD/CAD prices may continue to fall.
Positioning is less net-long than yesterday but more net-long from last week. The combination of current sentiment and recent changes offers us a mixed USD/CAD trading bias.
In this webinar, I also looked at the trends in the major currency, commodity and stock markets, at the forward-looking data on the economic calendar this week, at the IG Client Sentiment page on the DailyFX website, and at the IG Client Sentiment reports that accompany it.
— Written by Martin Essex, Analyst
Feel free to contact me on Twitter @MartinSEssex