Market Sentiment Improves, Stocks Benefit as US Dollar Sinks

Market sentiment analysis:

  • Trader confidence continues to rise, weakening the safe-haven US Dollar but benefiting so-called risk assets such as Wall Street stocks.
  • Those trends will likely continue for a while, with the S&P 500 set to challenge the highs.

Trader confidence rising

Trader confidence is returning to the markets, with money flowing out of safe havens like the US Dollar and into assets regarded as more risky, such as Wall Street stocks. The improvement in global risk sentiment is also strengthening the prices of assets such as copper and crude oil that would benefit from stronger global demand.

Moreover, for now at least, the markets seem to be shrugging off building inflation pressures that will likely lead to tighter monetary policy in countries such as the UK and the US, suggesting that these trends may continue.

S&P 500 Price Chart, Daily Timeframe (April 20 – October 19, 2021)

Chart by IG (You can click on it for a larger image)

Bullish signal for USD/CAD

In the meantime, IG client positioning data are sending out a bullish signal for USD/CAD. The retail trader data show 73.21% of traders using the company’s platforms are net-long, with the ratio of traders long to short at 2.73 to 1. The number of traders net-long is 0.60% lower than yesterday and 7.22% lower than last week, while the number of traders net-short is 26.57% higher than yesterday and 14.20% higher 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.Yet traders are less net-long than yesterday and compared with last week. Those recent changes in sentiment warn that the current USD/CAD price trend may soon reverse higher despite the fact traders remain net-long.

USD/CAD Positioning – IG Client Sentiment

Latest IG client sentiment data for USD/CAD.

Source: IG/DailyFX

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