Asia AM Digest: Aussie Dollar Drops with Iron Ore, Yen and Franc Rise

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The Australian Dollar underperformed yesterday, echoing a drop in iron ore prices that seemed to be interpreted as carrying negative implications for RBA rate hike prospects. Meanwhile, the US Dollar declined as the swift end of the US government shutdown inspired “reach for yield” behavior from investors. That has recently inspired capital flows out of the greenback.

The Japanese Yen traded broadly higher in the wake of the BOJ monetary policy announcement despite a strongly dovish tone from Governor Haruhiko Kuroda. Sentiment trends may have been the culprit, with the currency rising as S&P 500 futures retreated ahead of the opening bell on Wall Street. Tellingly, the similarly anti-risk Swiss Franc also put in a strong showing.Both units ignored a subsequent stock recovery.

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

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Retail trader data shows 39.9% of traders are net-long EUR/JPY, with the ratio of traders short to long at 1.5 to 1. In fact, traders have remained net-short since Jan 12 when EUR/JPY traded near 134.01; price has moved 1.1% higher since then. The number of traders net-long is 2.3% lower than yesterday and 14.7% higher from last week, while the number of traders net-short is 6.3% lower than yesterday and 5.7% lower from last week.

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

Five Things Traders are Reading:

1. Traders Urged to Respond to Proposed European Rule Changes by Martin Essex, MSTA and Luigi Guida, Market Analyst
2. AUD/USD Rally Approaching Initial Resistance Targets by Michael Boutros, Currency Strategist
3. AUD/NZD Price Sequence Leading It Towards a Breakdown by Paul Robinson, Market Analyst
4. Bitcoin, Ethereum, Ripple; Technical Support Still Needed by Nick Cawley, Analyst
5. Asian Stocks Applaud Shutdown’s End, BOJ Kuroda Sounds Dovish by David Cottle, Analyst

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