Asia AM Digest: Wall Street Attempts Recovery, NZ Dollar Gains

2018-02-07 00:30:00 Research, Research Team

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The New Zealand Dollar edged higher against its major counterparts following an impressive jobs report. Prior to the data, the sentiment-linked currency was already recovering as the markets took a breather following yesterday’s panic selloff.

Likewise, other sentiment-sensitive currencies such as the Australian and Canadian Dollars enjoyed a rosy session. The anti-risk Japanese Yen and Swiss Franc on the other hand suffered losses as the S&P 500 pulled back slightly during Tuesday’s session.

Commenting on yesterday’s aggressive risk aversion, St. Louis Fed President James Bullard said that it was “the most predicted market selloff of all time”. With policymakers appearing to see it as not much of a surprise, Bullard noted that he does not see policy changing appreciably.

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

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Retail trader data shows 66.8% of USD/JPY traders are net-long with the ratio of traders long to short at 2.01 to 1. In fact, traders have remained net-long since Dec 29 when USD/JPY traded near 113.317; price has moved 3.6% lower since then. The number of traders net-long is 7.6% lower than yesterday and 21.8% lower from last week, while the number of traders net-short is 3.9% higher than yesterday and 4.3% higher from last week.

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

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