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Asia AM Digest: All Eyes on Italian Election Results, Euro Swings

Asia AM Digest: All Eyes on Italian Election Results, Euro Swings

Research, Research Team


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The Canadian Dollar underperformed on Friday as local front-end government bond yields fell, hinting at ebbing hawkish Bank of Canada monetary policy expectations. In a follow-up to Thursday’s announcement on steel tariffs, US President Donald Trump said that “trade wars are good, and are easy to win”. His comments crossed the wires amidst ongoing NAFTA negotiations. Mr. Trump has in the past suggested to pull out of the agreement.

The anti-risk Japanese Yen and Swiss Franc on the other hand were some of the best performing majors. They benefited early into the session as Bank of Japan’s Governor Kuroda sparked risk aversion. Mr. Kuroda announced that the central bank could consider a policy exit around the 2019 fiscal year given certain circumstances. Sentiment-linked currencies such as the Australian and New Zealand Dollars suffered.

Over the weekend, Germany’s centre-Left Social Democratic Party voted to approve a coalition with Angela Merkel’s bloc. This effectively means that the Chancellor has a backing for a grand coalition. With that in mind, the Euro inched higher at Monday’s open.

Simultaneously, Italian election exit polls crossed the wires just as the session got started. The Euro climbed further as the results showed the Centre-right coalition ahead of the eurosceptic Five Star Movement. However, once the seat projections hinted that the country could be heading for a hung parliament, the Euro reversed its course. Expect more volatility to come as the final tally is counted.

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Retail trader data shows 70.4% of traders are net-long with the ratio of traders long to short at 2.38 to 1. In fact, traders have remained net-long since Dec 29 when USD/JPY traded near 113.0; price has moved 6.8% lower since then. The number of traders net-long is 3.0% lower than yesterday and 2.2% higher from last week, while the number of traders net-short is 4.9% lower than yesterday and 24.0% lower 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:

  1. China’s NPC: President, PBOC Governor Elections, 2018 Targets and More by Renee Mu, Currency Analyst
  2. Euro Contends with Italian Election Results, ECB Meeting by Christopher Vecchio, Sr. Currency Strategist
  3. EUR/USD Weekly Technical Forecast: Euro May Be in Trouble After Bounce by Paul Robinson, Market Analyst
  4. Yen Looks Attractive on Italian Election, US Jobs Data and More by Daniel Dubrovsky, Jr. Currency Analyst
  5. Australian Dollar Could Struggle With RBA Rate Call, Lowe Speech by David Cottle, Analyst

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