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Asia AM Digest: Euro Gains as SPD Mulls Merkel-Led Coalition

Asia AM Digest: Euro Gains as SPD Mulls Merkel-Led Coalition

Research, Research Team


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European currencies outperformed on Friday, with the Euro leading the way higher. This followed news that Germany’s center-left SPD party is mulling a grand coalition with its center-right rivalsin Chancellor Merkel’s CSU/CDU bloc. That would restore political stability in the Eurozone’s largest economy.

The Yen was the weakest among the major currencies as risk appetite improved across most global financial markets, weighing on the perennially anti-risk Japanese unit. The MSCI World Stock index – a proxy for broad-based sentiment trends – added 0.29 percent.

A rebound in front-end US Treasury bond yields weighed on the Australian and New Zealand Dollars. Those currencies’ yield appeal has been increasingly challenged by the greenback, which is now the third highest-yielding alternative in the G10 FX space.

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

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Retail trader data shows 49.0% of traders are net-long GBP/JPY, with the ratio of traders short to long at 1.04 to 1. In fact, traders have remained net-short since Nov 07 when GBP/JPY traded near 149.806; price has moved 0.6% lower since then. The number of traders net-long is 0.4% lower than yesterday and 17.1% lower from last week, while the number of traders net-short is 9.2% lower than yesterday and 25.9% lower from last week.

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

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