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Asia AM Digest: US Dollar Recovers, Thin Liquidity Ahead

Asia AM Digest: US Dollar Recovers, Thin Liquidity Ahead

Research, Research Team


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The US Dollar advanced on Friday against all of its major counterparts and clocked in its first advance in one week. As expected, the move appeared corrective following a 4-day losing streak as traders probably engaged in some profit-taking ahead of the US long weekend, where markets will be closed on Monday for the President’s Day holiday. Low liquidity might have also exaggerated some of the moves given the already occurring Lunar New Year.

Meanwhile the Japanese Yen was also a strong performer, boosted by the reappointment of BoJ Governor Haruhiko Kuroda for another term. The S&P 500 and Dow Jones closed more or less unchanged from Thursday, which had a knock-on effect on the typically anti-risk currency. This may have been due to Wall Street oscillated between gains and losses.

Towards the end of Friday’s session, US Special Counsel Robert Mueller charged 13 Russian nationals for interference during the US 2016 election. So far, these allegations have not concluded in any charges of collusion involving an American participant. Initial market response was calm but further investigation might lead to more volatility if such an outcome were to occur.

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

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Retail trader data shows 42.1% AUD/USD of traders are net-long with the ratio of traders short to long at 1.37 to 1. In fact, traders have remained net-short since Dec 19 when AUD/USD traded near 0.75061; price has moved 5.5% higher since then. The number of traders net-long is 1.9% higher than yesterday and 11.0% lower from last week, while the number of traders net-short is 6.9% lower than yesterday and 17.3% lower from last week.

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

Five Things Traders are Reading:

  1. NZD/USD Technical Analysis: 5-Day Win Streak Broken. Now What? by Ilya Spivak, Sr. Currency Strategist
  2. Australian Dollar Vulnerable to Risk Trends and External Factors by Daniel Dubrovsky, Jr. Currency Analyst
  3. Yen Surges to 15-Month Highs: Japanese Inflation as a Pivotal Driver by James Stanley, Currency Strategist
  4. Crude Oil Price Sees Weekly Gain on OPEC Persistence, Weak US Dollar by Tyler Yell, CMT, Forex Trading Instructor and CMT
  5. US Dollar May Fall Further on Timid FOMC Meeting Minutes by Ilya Spivak, Sr. Currency Strategist

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.