Market sentiment analysis:
- Market confidence has been hit by news of the Omicron strain of coronavirus but it appears less deadly than feared and that should improve sentiment.
- Stocks, the US Dollar and the prices of other assets that heave weakened should therefore rally before too long.
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Trader confidence to recover
Trader confidence has suffered from concerns that the new Omicron variant of Covid-19 will weaken the global economy again by causing further restrictions on travel and more lockdowns. However, it now seems that while Omicron is spreading rapidly it is less deadly than previous strains.
If that is confirmed, it should lead to an improvement in sentiment towards the assets that have suffered, including stocks, crude oil and the US Dollar. By contrast, it should weaken the safe-haven assets that have benefited, including the Swiss Franc and the Japanese Yen.
USD/JPY Price Chart, Daily Timeframe (July 13 – November 30, 2021)
Chart by IG (You can click on it for a larger image)
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Bearish signal from sentiment data
However, IG client positioning data are less bullish on assets like USD/JPY. The retail trader numbers show 39.77% of traders are net-long, with the ratio of traders short to long at 1.51 to 1. The number of traders net-long is 10.23% higher than yesterday and 12.66% higher than last week, while the number of traders net-short is 0.98% higher than yesterday but 20.99% lower than last week.
Here at DailyFX, we typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests USD/JPY prices may rise. Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that USD/JPY may decline further despite the fact traders remain net-short.
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
