Sentiment is one of the most important drivers of prices but it's very hard to define

When we want to find a narrative for a direction what do we look at? Fundamentals are one thing and sentiment is another

Is a price moving because the data points that way or is it moving because the market thinks the data will move that way?

Sentiment is very hard to tie down to an exact form. It's a view and we all have them, from where the next move is over 5 minutes, an hour, a day etc, what we "feel" is our sentiment.

The market's sentiment is a very powerful emotion. It can snowball and become and avalanche for direction. It can often be wrong just as much as it can be right, yet the effects can change trends and move markets to different levels before we know whether it's right or wrong

We've had a sentiment change in the euro. From parity calls we've now got talk of the ECB ending QE sooner on a few upward data points. Of course there's a bit more behind the 700+pip move since the middle of April but it's the sentiment that has carried the run on.

Take the earlier post on Credit Agricole and Socgen. The most important thing I read from their notes was that one was calling an end to EURUSD shorts and the other was less than convincing on continuing shorts. That leaves the sentiment facing one way only. Credit Agricole pointed to "investors" changing sentiment yet these investors trade through the big banks, so they get to see their clients sentiment changing, which then reflects into their own sentiment and research notes, then they pump them out to their other customers and their sentiment changes, and the snowball/herd mentality effect starts

So how do we trade it all?

If you can get a sniff of the market's sentiment early, you can ride the wave, even if it goes against your own fundamental or technical view. If the sentiment has shifted already and you disagree with the fundamental view (Does the recent European news warrant a 700+ pip rise over 19 odd days?), then you can find an opportunity to trade "reality" and go against the market.

Sentiment is obviously only one ingredient of the big trading soup and is a difficult beast to trade but even if you don't want to trade it, it gives you a "feel" for where the market is at and that in itself can be priceless