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Asia AM Digest: US Dollar Gains Before Trump SOTU Speech

Asia AM Digest: US Dollar Gains Before Trump SOTU Speech

Research, Research Team


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The US Dollar found a lifeline at the start of the trading week, gaining ground against all of its major counterparts. The greenback rose alongside Treasury bond yields while the priced-in 2018 rate hike outlook implied in Fed Funds futures steepened. That points to an improving monetary policy outlook as the catalyst for the advance, which newswires linked to speculation that President Donald Trump will unveil an infrastructure-spending plan in tomorrow’s State of the Union speech.

The British Pound declined amid tension in Brexit negotiations. David Davis – the top UK official managing the country’s withdrawal from the European Union – pushed back against an EU proposal to set an October deadline for a final deal. He said the UK won’t sign anything until it gets clarity on the future trade accord between the two parties. The order of operations envisions the UK and the EU a trade deal after the former country has formally left the regional bloc.

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

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Retail trader data shows 35.3% of traders are net-long EUR/USD, with the ratio of traders short to long at 1.84 to 1. In fact, traders have remained net-short since Apr 18 when EUR/USD traded near 1.05687; price has moved 16.8% higher since then. The number of traders net-long is 23.7% higher than yesterday and 5.7% lower from last week, while the number of traders net-short is 1.2% lower than yesterday and 8.0% 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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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.