Asia AM Digest: Yen, NZ Dollar Drop as US Bond Yields Jump
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The Euro traded broadly higher yesterday, shrugging off an unexpected downtick in Germany’s IFO business confidence gauge. The move higher tracked a surge in front-end German government bond yields. The move came amid news that the Eurozone’s largest economy plans to sell €183 billion in government debt next year, up from €172 billion in 2017.
The Japanese Yen fell as US Treasury bond yields rose, stoking carry trade demand at the expense of the standby funding currency. The rise in US borrowing costs likewise hurt the New Zealand Dollar, a top beneficiary of “fade the Fed” flows since last week’s FOMC meeting. The move looked to be disengaged from broader sentiment trends, at least to the extent that those are reflected in benchmark stock indexes.
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Retail trader data shows 50.2% of traders are net-long GBP/USD, with the ratio of traders long to short at 1.01 to 1. The number of traders net-long is 10.7% lower than yesterday and 11.6% lower from last week, while the number of traders net-short is 6.9% higher than yesterday and 1.7% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests GBP/USD 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 GBP/USD price trend may soon reverse higher despite the fact traders remain net-long.
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