Asia AM Digest: US Dollar Up, British Pound Gains on Brexit News
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On Tuesday, the US Dollar continued inversely following Wall Street. Indexes such as the S&P 500 and Dow Jones declined for the first time in six trading days, falling more than 0.5% and 1.0% respectfully. Meanwhile, yields on local 2-year government bonds rose to the highest since August 2008 at auction. All of this likely contributed to the greenback’s advance against its major counterparts.
Positive Brexit developments helped push the British Pound to be a strong performer as well. The European Parliament reiterated a call to establish more flexibility in post-Brexit UK negotiations. They are constructing a detailed resolution as we speak which is planned be adopted by mid-March. Implied volatility levels point to more Sterling volatility in the days ahead.
Looking ahead, Australia’s wage price index will cross the wires early into Wednesday’s trading session. This event could be a wildcard if strong wage growth sparks another bout of inflation fears in the markets. However, the recent better-than-expected US and UK CPI reports failed to do so.
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IG Client Sentiment Index Chart of the Day: NZD/USD
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Retail trader data shows 26.8% of NZD/USD traders are net-long with the ratio of traders short to long at 2.74 to 1. In fact, traders have remained net-short since Jan 05 when NZD/USD traded near 0.70915; price has moved 3.6% higher since then. The number of traders net-long is 0.6% higher than yesterday and 6.9% lower from last week, while the number of traders net-short is 16.1% higher than yesterday and 22.2% higher 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. Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger NZD/USD-bullish contrarian trading bias.
Five Things Traders are Reading:
- Forex: Price Action Setups Ahead of FOMC, ECB Minutes by James Stanley, Currency Strategist
- Subdued Australia Wage Price Index (WPI) to Fuel AUD/USD Losses by David Song, Currency Analyst
- USD/JPY Price Analysis: Rebound to Offer Opportunity by Michael Boutros, Currency Strategist
- USD/JPY Rate Outlook Hinges on Fed Rhetoric by David Song, Currency Analyst
- EUR/USD Back to Support as USD Stages Strength Ahead of FOMC Minutes by James Stanley, Currency Strategist
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