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The Euro and the British Pound declined after almost-there Brexit deal unraveled. Prime Minister Theresa May was forced to backtrack after her coalition partners in the DUP – a unionist party from Northern Ireland – balked at a deal that would harmonize trade rules in the country with those of the Republic of Ireland, making of for a softer post-border running through the island.
Interestingly, the Swiss Franc eschewed its role as a regional haven and fell as well. Meanwhile, the Norwegian Krone and Swedish Krona traded broadly higher, with gains looking most pronounced against European alternatives. This may imply that capital flows were seeking more distant safe harbor from Brexit-related concerns than even the Franc is able to provide.
The US Dollar traded higher alongside front-end Treasury bond yields while gold prices understandably weakened, undercut by the waning appeal of non-interest-bearing and anti-fiat assets. The Australian and New Zealand Dollars managed to finish the day with broad-based gains having rallied in Asia Pacific hours but both currencies retreated to finish day well off their highs.
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IG Client Sentiment Index Chart of the Day: USD/JPY
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Retail trader data shows 56.1% of traders are net-long USD/JPY, with the ratio of traders long to short at 1.28 to 1. In fact, traders have remained net-long since Nov 15 when USD/JPY traded near 113.603; price has moved 0.7% lower since then. The number of traders net-long is 1.0% lower than yesterday and 30.6% lower from last week, while the number of traders net-short is 3.0% higher than yesterday and 11.2% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests USD/JPY prices may continue to fall. Yet traders are less net-long than yesterday and compared with last week. Recent changes in sentiment warn that the current USD/JPY price trend may soon reverse higher despite the fact traders remain net-long.
Five Things Traders are Reading
- Dollar Range Poised to Give Way with NFP, FOMC in Sight by James Stanley, Currency Strategist
- AUD/JPY Recovery Stalls at Resistance- Monthly Opening Range in Focus by Michael Boutros, Currency Strategist
- AUD/USD to Stage Larger Recovery on Upbeat Australia GDP Report by David Song, Currency Analyst
- Brexit and US Tax Plans Dominating Market Sentiment by Martin Essex, MSTA
- British Pound Falls From Fibonacci Support as USD Tries to Pick a Direction by James Stanley, Currency Strategist
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