FxWirePro: Retail sentiment points to downside ahead of ECB

For the euro traders, the focus is on the European Central Bank’s (ECB) policy announcement, as the central bank is widely expected to follow the U.S. Federal Reserve in signaling policy easing in the coming meetings.  In terms of interest rate, no change is expected today, however, the central bank might as well signal readiness to cut rates, especially as the flash PMI, released earlier this week have been very discouraging.

The latest flash PMI showed that the recession in the European manufacturing sector is actually deepening. French manufacturing PMI has now declined to the lowest since the beginning of the year, while German manufacturing sank to the lowest in 7 years.

We expect the euro to remain downbeat and move lower post-ECB. The retail sentiment at least favors such an outlook.

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, points to bearish bias in the EUR/USD.
• IG markets’ retail positions data provide a glimpse to retail traders’ positions, which are largely used a contrarian indicator since retail positioning moves in the opposite direction to market movements.
• As of today, according to data from IG markets, sentiment once again flipped to the bearish side after a temporary flip to bullish bias on Friday.  Today, the report suggests that 74 percent of the retail positions are on the buy-side in EUR/USD, while 26 percent are bearish. That gives the pair a bearish bias.