Asia AM Digest: US Dollar on the Defensive as 2018 Gets Underway
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The US Dollar fell as 2018 got underway, losing ground against all of its G10 FX peers even as front-end Treasury bond yields rose and the priced-in rate hike path implied in Fed Funds futures steepened. That seems to point away from textbook fundamentals as the catalyst for the selloff. A parallel rise in US stocks hints it may reflect capital flows returning out of cash and into riskier assets after the New Year holiday.
The British Pound outperformed in a move that might have been corrective after the currency slid to a one-month low against its leading counterparts on last year’s final trading day. A retracement may have also explained a broad-based drop in the New Zealand Dollar. The island nation’s currency hit a two-month high against an average of the world’s top-traded alternatives in twilight hours of 2017.
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IG Client Sentiment Index Chart of the Day: NZD/USD
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Retail trader data shows 50.1% of traders are net-long NZD/USD, with the ratio of traders long to short at 1.0 to 1. The number of traders net-long is 2.4% higher than yesterday and 17.7% lower from last week, while the number of traders net-short is 13.6% higher than yesterday and 5.3% higher from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests NZD/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 NZD/USD price trend may soon reverse higher despite the fact traders remain net-long.
Five Things Traders are Reading
- DailyFX Q1 2018 Forecasts: USD, Oil and Equities by DailyFX Research Team
- Euro May Top the List of Major Trend Reversals in 2018 by Ilya Spivak, Sr. Currency Strategist
- New Year Starts With USD Continuing to Fall by Martin Essex, MSTA
- EUR/USD Rate Outlook Supported by Bullish RSI Behavior by David Song, Currency Analyst
- Japanese Yen Could Rally Against the Dollarby Dylan Jusino, DailyFX Research Team
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