Sentiment analysis involves gauging the overall mood or "feel" of the market to determine whether traders are predominantly bullish (optimistic) or bearish (pessimistic). This approach helps traders understand how collective emotions might influence currency price movements, making it a valuable tool for those who seek to align their trades with the prevailing market sentiment. 

Sentiment analysis is often measured through indicators like the Commitment of Traders (COT) report, which shows the positioning of large institutional traders, commercial hedgers, and small retail traders. For instance, if the majority of institutional traders are long on a particular currency, it can signal a strong bullish sentiment. Conversely, if they are heavily short, it indicates a bearish outlook. 

Another way to assess sentiment is through news sentiment analysis, where traders monitor headlines and market commentary to gauge the mood of investors. For example, widespread negative news about a country's economy or political situation can create a bearish sentiment toward its currency, even before fundamental data confirms the downturn. 

Sentiment analysis is most effective when combined with technical and fundamental analysis. While sentiment can drive short-term market movements, it often serves as a contrarian indicator, where extreme levels of optimism or pessimism could signal an impending reversal.