Market update: risk sentiment recovers as AUD/USD, oil, and gold stabilise

Markets stabilise as volatility subsides and commodities rally

Monday witnessed a calmer start to the trading week compared to the previous one. The brief panic has lessened, with the Volatility Index (VIX) declining from 65 to just over 20 ahead of the New York open. The Australian dollar, often viewed as a risk asset due to its correlation with the S&P 500, has shown signs of recovery in recent sessions.

Oil, a barometer for the global economy, continues its recovery after a prolonged sell-off. Gold, known for its rise during geopolitical uncertainty, also attempted a return to its all-time high. As central banks consider easing tight monetary policy, gold becomes more appealing because it is a non-yielding asset and becomes relatively more attractive when interest rates are lower.

Gold technical analysis

Retail trader data shows a slight preference for long positions in gold, with 54.26% of traders net-long and a long-to-short ratio of 1.19 to 1. Net-long positions have increased by 1.07% since yesterday and 12.29% from last week, while net-short positions have risen by 3.25% since yesterday and 6.33% from last week.

A contrarian view on crowd sentiment suggests potential downside for gold prices, but mixed signals. The contrarian view indicated, "less net-long than yesterday but more net-long than last week" and recent changes in positioning complicate the trading outlook for gold.

Gold client positioning chart

US crude oil technical analysis

An overwhelming 82.73% of retail traders are net-long on US crude oil, with a long-to-short ratio of 4.79 to 1. Net-long traders have slightly increased by 1.78% from yesterday, though they have decreased by 5.84% from last week. Net-short traders have increased by 2.86% since yesterday and by a significant 36.39% from last week.

Our contrarian stance on crowd sentiment suggests further declines in US crude prices might occur. However, a decrease in net-long positions over the week, coupled with a significant increase in net-short positions, suggests a potential upward price reversal despite the prevailing net-long bias.

US crude oil client positioning chart

AUD/USD technical analysis

Retail trader data shows a significant long position bias in the AUD/USD market, with 73.38% of traders net-long. The ratio of long to short traders stands at 2.76 to 1. There has been a 3.49% increase in net-long traders since yesterday, but a 7.34% decrease from last week. Net-short traders have increased by 8.12% since yesterday and a substantial 65.38% from last week.

Although we typically take a contrarian view to crowd sentiment by suggesting AUD/USD prices may continue to fall, the reduction in net-long positions and an increase in net-short positions hint at a possible reversal to the upside, despite the overall net-long bias.

AUD/USD client positioning chart

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