Asia AM Digest: US Dollar Battered in Thin Holiday Trade
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The US Dollar continued to slide against its major counterparts in thin holiday trade. US markets were closed for the Martin Luther King Jr Day holiday, diminishing participation. Within that context, the slide appeared to reflect continuation of broader selling pressure emerging in recent weeks as capital flows abandon the relatively mature Fed tightening cycle to look for fresher opportunities elsewhere.
The Australian and New Zealand Dollars seemed to be prime examples of this dynamic. The currencies rose against all of their G10 FX counterparts as priced-in policy expectations implied in OIS rates appeared to show traders now see local tightening commencing sooner than even a week ago. Meanwhile, the Canadian Dollar continued to pull back in what looks like de-risking ahead of this week’s BOC rate decision.
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IG Client Sentiment Index Chart of the Day: EUR/USD
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Retail trader data shows 34.4% of traders are net-long EUR/USD, with the ratio of traders short to long at 1.91 to 1. The number of traders net-long is 12.6% higher than yesterday and 9.7% higher from last week, while the number of traders net-short is 6.5% lower than yesterday and 18.7% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EUR/USD 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/USD price trend may soon reverse lower despite the fact traders remain net-short.
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