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Asia AM Digest: Aussie Dollar May Suffer as China Data Disappoints

Asia AM Digest: Aussie Dollar May Suffer as China Data Disappoints

Research, Research Team

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The New Zealand Dollar traded broadly higher against its major counterparts, with the prospect of an end to political uncertainty seemingly the catalyst at work. NZ First party leader Winston Peters – the “kingmaker” who’s support is needed for either the incumbent National or opposition Labour party to form a government – said negotiations will be completed today. The NZ First board will then vote on whom to back over the weekend or possibly as late as Monday.

Brexit-related headlines drove sharp swings in the Euro and the British Pound. The single currency rallied while the UK unit fell amid news that talks have reached an impasse. Both moves reversed course a mere four hours later after chief EU negotiator Michel Barnier said he will seek agreement on allowing the UK a two-year transitional membership in the single market following the divorce.

The US Dollar put in a mixed performance, finding a bit of a boost in upbeat US PPI data but ultimately failing to find lasting follow-through until the more potent CPI report crosses the wires Friday (as expected).

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

The economic data docket is relatively timid in Asia Pacific trading hours. September’s Chinese trade data may inspire a response from the Australian Dollar – the markets frequently used proxy for trading developments in the world’s number-two economy – as well as broader sentiment trends. Lasting follow-through will probably require substantial deviation from baseline forecasts however. With that in mind, it is worth keeping in mind that Chinese economic news-flow has increasingly deteriorated relative to expectations over the past month.

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

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Retail trader data shows 41.4% of traders are net-long EUR/JPY, with the ratio of traders short to long at 1.42 to 1. In fact, traders have remained net-short since Aug 04 when EURJPY traded near 129.401; price has moved 2.7% higher since then. The percentage of traders net-long is now its highest since Sep 15 when EUR/JPY traded near 132.396. The number of traders net-long is 17.2% higher than yesterday and 36.1% higher from last week, while the number of traders net-short is 2.1% higher than yesterday and 10.1% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EUR/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 EUR/JPY price trend may soon reverse lower despite the fact traders remain net-short.

Five Things Traders are Reading

  1. Central Bank Weekly: What’s the Next Move for the Fed & the US Dollar? by Christopher Vecchio, CFA, Sr. Currency Strategist
  2. Price Action Setups Around the U.S. Dollar Ahead of CPI by James Stanley, Currency Strategist
  3. Near-term Setups in Bitcoin, Ethereum and USD/JPY by Michael Boutros, Currency Strategist
  4. GBP/USD Rebound Hit by Slowing U.K. Consumer Credit, Brexit Deadlock by David Song, Currency Analyst
  5. Nikkei 225 Technical Analysis: Time to Pause Before Pushing On? by David Cottle, Analyst

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