Market sentiment analysis:
- Markets are stable as traders wait for more information about the spread of the Omicron coronavirus variant and the meetings this week of the Federal Reserve, the ECB, the Bank of England and the Bank of Japan.
- Traders will need to be cautious until those meetings are over and trends become clearer.
Trader caution called for
Traders need to be cautious this week ahead of news about the spread of the Omicron coronavirus variant and a slew of central bank meetings: the Federal Reserve announces its decision on monetary policy Wednesday, followed by the European Central Bank and the Bank of England Thursday, and the Bank of Japan Friday.
The Fed will be especially important for market sentiment as it is expected to be hawkish after news that US inflation has hit its highest level since 1982, and a decision to reduce its bond-buying program faster than previously expected is on the cards. Neither the ECB nor the BoE are expected to follow suit, particularly as evidence is building for a slowdown in Germany and new restrictions are being introduced in the UK because of Covid-19 worries.
Still, the major trend in pairs like EUR/USD is lower, and that could mean more losses once the current period of consolidation is over.
EUR/USD Price Chart, Daily Timeframe (May 11 – December 14, 2021)
Chart by IG (You can click on it for a larger image)
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Busy week for sentiment data
This week is also busy for forward-looking data that could impact sentiment. Among the highlights are “flash” purchasing managers’ indexes for most of the major economies Thursday, as well as the Ifo business climate index for Germany Friday.
As for the IG client sentiment numbers, there is currently a bullish signal for GBP/USD and you can read more about that here. The data show that 74.35% of GBP/USD traders are net-long, with the ratio of traders long to short at 2.90 to 1. The number of traders net-long is 2.89% higher than yesterday and 3.74% higher than last week, while the number of traders net-short is 6.68% lower than yesterday and 3.96% lower than last week.
Here at DailyFX, we typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests GBP/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 GBP/USD-bearish contrarian trading bias.
In this webinar, I 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