Asia AM Digest: Pound Retreats, Trump Comments Lift US Dollar
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The British Pound traded broadly lower against its major counterparts. The apparent absence of a single catalyst inspiring the move hints it might have been corrective after Sterling rose to the highest level since June 2016 against an average of its major counterparts.
The Australian and New Zealand Dollars plunged in tandem. The move played out inversely of a rise in front-end US Treasury bond yields and a steepening of the priced-in 2018 rate hike path implied in Fed Funds futures, highlighting the possibility that the greenback will soon close the yield gap with both currencies.
The US Dollar enjoyed a late-day lift after US President Donald Trump said he “ultimately” wants to see the currency strengthen, countervailing comments from Treasury Secretary Mnuchin that seemed to celebrate its recent weakness as a boost for exporters.
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IG Client Sentiment Index Chart of the Day: GBP/USD
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Retail trader data shows 37.1% of traders are net-long GBP/USD, with the ratio of traders short to long at 1.69 to 1. In fact, traders have remained net-short since Dec 28 when GBP/USD traded near 1.33553; price has moved 6.8% higher since then. The number of traders net-long is 1.6% lower than yesterday and 2.9% higher from last week, while the number of traders net-short is 11.9% lower than yesterday and 0.1% higher from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBP/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 GBP/USD price trend may soon reverse lower despite the fact traders remain net-short.
Five Things Traders are Reading:
- Traders Urged to Respond to Proposed European Rule Changes by Martin Essex, MSTA and Luigi Guida, Market Analyst
- Becoming a Better Trader: Identifying Logical Stops & Targets by Paul Robinson, Market Analyst
- Near-term Setups in GBP/USD, USD/JPY, AUD/JPY by Michael Boutros, Currency Strategist
- EUR/USD Folds at 1.2500 as USD Bounces From Three-Year-Lows by James Stanley, Currency Strategist
- Gold Prices Hit 17 Month High; What Does the Wave Analysis Forecast? by Jeremy Wagner, CEWA-M, Head FX Trading Instructor
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