Asia AM Digest: US Dollar Up as Powell Swells Fed Rate Hike Bets

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The US Dollar index closed at its highest since January 23rd as Fed Chair Jerome Powell testified to Congress. Mr. Powell noted that his outlook for the economy has strengthened along with his confidence on inflation getting stronger. This probably led to the markets to believe that a fourth Fed rate hike may even be a possibility this year. Local government bond yields rallied.

Prospects of tightening credit in the US did not bode well for Wall Street. The S&P 500 declined around 1.27%, the most since February 8th. Meanwhile, anti-risk currencies such as the Japanese Yen and Swiss Franc benefited while the sentiment-linked New Zealand and Australian Dollars suffered.

Prior to these developments, worse-than-expected German CPI data hurt the Euro. The preliminary estimate of Germany’s headline inflation rate was 1.4% year-over-year in February. That is the slowest pace of price growth since November 2016. We will see whether disinflation also plagues the single currency bloc when on Wednesday the Euro-Zone CPI estimates cross the wires.

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

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Retail trader data shows 32.9% of NZD/USD traders are net-long with the ratio of traders short to long at 2.04 to 1. In fact, traders have remained net-short since Jan 05 when NZD/USD traded near 0.70673; price has moved 3.3% higher since then. The number of traders net-long is 1.7% lower than yesterday and 0.6% lower from last week, while the number of traders net-short is 5.0% lower than yesterday and 11.8% 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. Dollar Pops After Powell Comments: But Can USD Strength Survive? by James Stanley, Currency Strategist
2. EUR/USD Price Analysis- Losses Likely to Be Limited, Levels to Know by Michael Boutros, Currency Strategist
3. Upside Risk For Euro-Zone Inflation But ECB to Remain Cautious by Martin Essex, MSTA, Analyst and Editor
4. Here Are the Key Points From Fed Chairman Powell’s Testimony by the DailyFX Research Team
5. EUR/USD Snaps Narrow Range on Powell Testimony; Euro-Zone CPI on Tap by David Song, Currency Analyst

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