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Asia AM Digest: US Holiday Put Focus on Asia as Nikkei 225 Rose

Asia AM Digest: US Holiday Put Focus on Asia as Nikkei 225 Rose

Research, Research Team

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On Monday, US financial markets were closed for the President’s Day holiday. This probably had traders focusing their attention on what was going on outside of the world’s largest economy. In Japan, the Nikkei 225 gapped higher and rose about 2 percent. This brought the index to a level just shy of a 2-week high.

A rosy day in Asia undermined the attractiveness of anti-risk currencies such as the Japanese Yen and Swiss Franc. They were the worst performing majors. Given the illiquid trading conditions, things might have ended up worse for these currencies if it were not for the retreat in stocks during Europe’s session afterwards.

Indeed, the Euro Stoxx 50 experienced its first decline in four days falling roughly 0.55%. Meanwhile, the FTSE 100 fared a little worse dropping more than 0.6%. This pessimistic trading environment also robbed some of the gains seen in sentiment-linked currencies such as the Australian Dollar from Asia’s session.

Looking ahead, the RBA’s minutes from February’s monetary policy announcement will cross the wires early into Tuesday’s session. As we mentioned last week, the details of the report will probably echo the central bank’s reluctance to commit to changing rates for now.

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

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Retail trader data shows 75.8% of USD/JPY traders are net-long with the ratio of traders long to short at 3.14 to 1. In fact, traders have remained net-long since Dec 29 when USD/JPY traded near 113.244; price has moved 5.9% lower since then. The number of traders net-long is 14.5% higher than yesterday and 36.4% higher from last week, while the number of traders net-short is 2.8% lower than yesterday and 15.0% 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. Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger USD/JPY-bearish contrarian trading bias.

Five Things Traders are Reading:

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