USD Sentiment Turns Frothy as Stock Bulls Hit 45% on AAII Survey

Market sentiment indicators are flashing warning signs as the AAII bullish reading surged to 45% from 35.1% in the latest week, suggesting increasingly frothy conditions across US assets. The sharp 10-percentage-point jump reflects a market hitting all-time highs almost daily, driven by the one-way 'TACO trade' momentum since Trump's decision to postpone Liberation Day tariffs. This sentiment shift typically correlates with dollar strength as risk-on flows favor US assets, potentially pressuring EUR/USD below 1.0800 and lifting USD/JPY toward 150.00. However, extreme bullish readings often precede market corrections, which could trigger sudden dollar reversals. Traders should monitor VIX levels and put/call ratios for confirmation of sentiment extremes. The rapid sentiment shift suggests markets may be vulnerable to any negative catalyst, with potential for sharp USD volatility if risk-off conditions emerge.