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Asia AM Digest: US Dollar May Retake Initiative on FOMC Minutes

Asia AM Digest: US Dollar May Retake Initiative on FOMC Minutes

Research, Research Team

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The US Dollar remained on the defensive, with markets continuing to take advantage of a lull in top-tier news flow to digest three weeks of gains. That advance came on the back of firming Fed rate hike bets. The priced-in probability of a December increase now stands 76.7 percent, up from 35.5 percent a month ago.

European currencies led the way higher against the greenback, with the Euro scoring outsized gains. That followed after Catalan President Carles Puigdemont opted against a unilateral declaration of independence following a controversial referendum produced a vote in favor of seceding from Spain.

The New Zealand Dollar failed to capitalize amid lingering political uncertainty after an inconclusive general election. NZ First party leader Winston Peters faces an October 12 deadline to decide whether he will support the ruling party National or opposition Labour, ending the deadlock.

DailyFX Economic Calendar: Asia Pacific (all times in GMT)

Most of the day’s limited stock of Asia Pacific economic data is out of the wayalready and the European calendar is empty. That leaves the markets without an unambiguous fundamental focal point until minutes from September’s FOMC policy meeting cross the wires later in the day.

Senior Currency Strategist Ilya Spivak noted in the weekly US Dollar forecast that the document is likely to echo the hawkish bias on display in most recent commentary from central bank officials. While that wouldn’t be much of a surprise, it may be enough in the context of the greenback’s recent weakness to put it back on the offensive.

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IG Client Sentiment Index Chart of the Day: AUD/JPY

CLICK HERE to learn more about the IG Client Sentiment Index

Retail trader data shows 40.0% of traders are net-long AUD/JPY, with the ratio of traders short to long at 1.5 to 1. In fact, traders have remained net-short since Sep 14 when AUD/JPY traded near 87.743; price has moved 0.5% lower since then. The number of traders net-long is 7.8% higher than yesterday and 7.1% higher from last week, while the number of traders net-short is 2.0% lower than yesterday and 11.4% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests AUD/JPY prices may continue to rise. Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current AUD/JPY price trend may soon reverse lower despite the fact traders remain net-short.

Five Things Traders are Reading

  1. Dollar Turns Lower and US Equities Meander after IMF Update by John Kicklighter, Chief Currency Strategist
  2. Dominant Drivers Of USD/JPY Look To Be Pausing Ahead of Election by Tyler Yell, CMT
  3. EUR/USD Attracted to 1.20 by Jeremy Wagner, CEWA-M
  4. GBP/USD Technical Analysis: The Sliding Scales of Support by James Stanley, Currency Strategist
  5. USD/JPY Stair-Stepping Down Support by Michael Boutros, Currency Strategist

The Asia AM Digest is published every day before the Tokyo cash equity open - you can sign up here to receive that report in your inbox every day.

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.