Asia AM Digest: Yen Falls with Nikkei, Loonie Dips with Crude Oil

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The anti-risk Japanese Yen outperformed against its major counterparts on Tuesday. Declines in the Topix Index and the Nikkei 225, which were dragged down by automakers and banks, boosted the Yen during Asia’s session. A partial recovery on Wall Street later that day did little to reverse the currency’s strength.

Sentiment-linked currencies such as the Australian and New Zealand Dollars thus underperformed while the safe haven Swiss Franc also gained. Earlier in the day, the US Dollar tracked local bond yields lower.

Meanwhile, the Canadian Dollar declined alongside crude oil prices. API reported that oil inventories rose by 3.95 million last week. If an EIA report later today confirms this, it would make for the largest increase since December 29.

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

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Retail trader data shows 33.4% of NZD/USD traders are net-long with the ratio of traders short to long at 1.99 to 1. In fact, traders have remained net-short since Jan 05 when NZD/USD traded near 0.70925; price has moved 2.6% higher since then. The number of traders net-long is 6.5% higher than yesterday and 40.0% higher from last week, while the number of traders net-short is 9.1% lower than yesterday and 23.0% lower from last week.

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

Five Things Traders are Reading:

1. US Dollar Price Action Setups Ahead of US Inflation by James Stanley, Currency Strategist
2. Yen Momentum Likely to Continue by DailyFX Research Team
3. USD/JPY Rate Remains Under Pressure Despite Hawkish Fed Rhetoric by David Song, Currency Analyst
4. US Dollar Strength Dissipates: US Inflation on Deck by James Stanley, Currency Strategist
5. Australian Dollar Should Remain Heavy On Global Risk Aversion by David Cottle, Analyst

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