Asia AM Digest: US Dollar Uptrend Struggles Amid News Flow Lull
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The US Dollar edged out another fractional advance against an average of its G10 FX counterparts but struggled to make substantive progress absent fresh fodder fueling the Fed rate hike narrative. The benchmark currency finished the day little-changed against most of the majors having erased nearly all of its intraday gains after touching a one-month high early in the session.
The New Zealand Dollar suffered outsized losses as RBNZ tightening prospects darkened. The probability of a rate hike over the next 12 months fell to 84 percent, the lowest in two weeks. The British Pound also took a knock after construction PMI data disappointed and minutes from last meeting of the BOE’s FPC committee that identified Brexit as a threat to cross-border derivatives clearing and warned of over-reliance on Libor.
DailyFX Economic Calendar: Asia Pacific (all times in GMT)
A lackluster offering on the Asia Pacific economic data docket might keep the consolidative tone in force for now. UK PMI might make some waves in Europe while the service-sector ISM report couples with a speech from Janet Yellen in US hours, reviving BOE and Fed interest rate hike speculation. In the meantime, sentiment trends might emerge as a catalyst, which could bode ill for the perennially anti-risk Japanese Yen if regional shares take their cues from an upbeat day on Wall Street.
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IG Client Sentiment Index Chart of the Day: USD/JPY
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Retail trader data shows 52.2% of traders are net-long USD/JPY, with the ratio of traders long to short at 1.09 to 1. In fact, traders have remained net-long since Jul 18 when USD/JPY traded near 113.122; price has moved 0.2% lower since then. The number of traders net-long is 5.6% lower than yesterday and 1.8% lower from last week, while the number of traders net-short is 3.6% higher than yesterday and 14.1% higher from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests USD/JPY prices may continue to fall. Yet traders are less net-long than yesterday and compared with last week. Recent changes in sentiment warn that the current USD/JPY price trend may soon reverse higher despite the fact traders remain net-long.
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