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Asia AM Digest: Yen Eyes BOJ, Aussie Dollar May Overlook China PMI

Asia AM Digest: Yen Eyes BOJ, Aussie Dollar May Overlook China PMI

Research, Research Team

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Most major currencies advanced against the US Dollar as Congressional policymakers mulled phasing in tax cuts rather than lowering rates outright, cooling hopes for an inflationary fiscal push that forces the Fed into a steeper rate hike cycle. News of the first indictments in Special Counsel Mueller’s probe into links between the Trump presidential campaign and Russia might have also weighed (as expected).

The British Pound was strongest on the session in a move that may have reflected pre-positioning ahead of this week’s BOE monetary policy announcement. Markets are widely expecting a rate hike, with the probability of an increase priced in at 85.9 percent. Receding Brexit fears among some bankers may have helped as well, according to DailyFX Analyst and Editor Martin Essex, MSTA.

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

Asia AM Digest: Yen Eyes BOJ, Aussie Dollar May Overlook China PMI

Japanese employment and industrial production statistics passed without a significant response from the Yen and financial markets at large as traders look ahead to a monetary policy announcement from the Bank of Japan. DailyFX Currency Strategist James Stanley expects no change in policy but a possible downgrade in inflation expectations.

Later in the day, official Chinese PMI data is expected to show the pace of manufacturing-sector activity growth slowed in October. The result may not yield a strong response from the Australian Dollar – the FX markets’ go-to liquid proxy for trading news out of the East Asian giant – given an RBA that isn’t expected to touch rates until August 2018. A wild deviation from forecasts may echo in risk appetite trends however.

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Asia AM Digest: Yen Eyes BOJ, Aussie Dollar May Overlook China PMI

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

Asia AM Digest: Yen Eyes BOJ, Aussie Dollar May Overlook China PMI

CLICK HERE to learn more about the IG Client Sentiment Index

Retail trader data shows 32.6% of traders are net-long with the ratio of traders short to long at 2.07 to 1. In fact, traders have remained net-short since Aug 04 when EUR/JPY traded near 130.084; price has moved 1.1% higher since then. The number of traders net-long is 31.0% higher than yesterday and 5.4% higher from last week, while the number of traders net-short is 18.3% higher than yesterday and 1.2% 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. Dollar Pulls Back Into Month End, Long-Term Gains Favored by Tyler Yell, CMT
  2. A Weekly Technical Perspective on DXY, GBP/USD & Crude by Michael Boutros, Currency Strategist
  3. Dovish Bank of England (BoE) Rate-Hike to Rattle GBP/USD Resilience by David Song, Currency Analyst
  4. USD/JPY Stalls But Holds Above Support by Jeremy Wagner, CEWA-M
  5. Dollar Mute as Personal Spending Ticks Up, Inflation Remains Below 2% Fed Target by Dylan Jusino, DaliyFX Research

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

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