FxWirePro: Key takeaways from retail sentiment ahead of FOMC

The Federal Open Market Committee (FOMC) will announce interest rate decision at 18:00 GMT, followed by a press conference by Fed chair Powell at 18:30 GMT.

• The USD has suffered significant selloff ahead of FOMC as traders rushed to cover dollar longs amid rampant speculation that the Fed would cut rates and make dovish adjustments to its monetary policies.
• As the Federal funds rate has recently widened its gap with the interest paid on excess reserve (IOER), suggesting liquidity stress in the system, the central bank is expected to take up steps to address the liquidity problem by adjusting IOER or reducing the pace of its balance sheet reduction.

Retail sentiment:

• The sentiment reports from IG Markets, which is a UK-based company providing trading in financial derivatives such as contracts for difference and financial spread betting, provides clues to future movement through retail positioning.
• IG markets’ retail positions data provide a glimpse to retail traders’ positions, which are largely used as a contrarian indicator since retail positioning moves in the opposite direction to market movements.

EUR/USD - 55 percent of retail positions are long on EUR/USD, giving the pair a bearish bias. However, long positions have declined from 72 percent last week.

GBP/USD - 61 percent of retail positions are long on GBP/USD, giving the pair a bearish bias. However, long positions have declined from 73 percent last week.

USD/JPY - 53 percent of retail positions are short on USD/JPY, giving the pair a bullish bias. However, short positions have declined from 68 percent last week.