Asia AM Digest: Markets Digest Volatility, China PMI on Tap
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The British Pound underperformed yesterday. The currency plunged against its major counterparts after the Bank of England signaled that the first interest rate hike in over a decade does not mark the beginning of a sustained, near-term tightening cycle. BOE Governor Mark Carney hinted at only a handful of further hikes in the coming 2-3 years.
The US Dollar declined after Republican leaders unveiled their much-anticipated tax cut plan amid speculation that it will struggle to be passed. Several GOP lawmakers have already broken party lines and signaled they will oppose the proposal in its current form. Markets speculated that reducing taxes might boost inflation, forcing the Fed to hike rates faster.
DailyFX Economic Calendar: Asia Pacific (all times in GMT)
Caixin Chinese PMI data headlines the economic calendar in Asia Pacific hours, with the service-sector and composite (i.e. non-farm) surveys on tap. The manufacturing component was released earlier in the week and offered a degree of support for the Australian Dollar – a favored market proxy for trading China-related news flow – having painted a slightly more positive picture than official figures.
Japanese financial markets are closed for the Culture Day holiday, sapping liquidity. That might make for muted trade in the near term, though traders would be wise to remember that reduced participation can also increase sensitivity to headline risk and amplify seesaw volatility. With that in mind, proceeding with caution seems prudent.
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IG Client Sentiment Index Chart of the Day: EUR/GBP
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Retail trader data shows 44.1% of traders are net-longEUR/GBP, with the ratio of traders short to long at 1.27 to 1. The number of traders net-long is 5.5% lower than yesterday and 2.8% higher from last week, while the number of traders net-short is 8.2% lower than yesterday and 2.1% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EUR/GBP 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/GBP price trend may soon reverse lower despite the fact traders remain net-short.
Five Things Traders are Reading
- Cable Crumbles as the BoE Hikes: NFP is on Deck by James Stanley, Currency Strategist
- Brexit Briefing: Brexit to Drive GBP Now UK Rates Have Risen by Martin Essex, MSTA
- USD/JPY Eyes Key 2017 Resistance Hurdle Ahead of NFP Report by Michael Boutros, Currency Strategist
- Becoming a Better Trader: Classic Chart Patterns (Part I) by Paul Robinson, Market Analyst
- AUD/USD Rebound to Face Bearish Formations, Wait & See RBA by David Song, Currency Analyst
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