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The Japanese Yen underperformed on Friday as US President Donald Trump said that North Korea would halt its missile testing, boosting confidence in the markets. Stocks in Asia, Europe and the US finished the day in the green. Sentiment-linked currencies such as the Australian, New Zealand and Canadian Dollars benefited. Meanwhile, the US Dollar underperformed as a local jobs report showed that average hourly earnings missed expectations.
Over the weekend, developments that followed up on Mr. Trump’s tariff signing had an impact on the markets at the beginning of Monday’s trading session. Australia’s Prime Minister Malcolm Turnbull confirmed that the country would not be subjected to the tariffs. The European Union on the other hand looks like it will not be left out so easily. Mr. Trump signaled that it would only get an exemption if his demands are met.
Once trading began at the beginning of the week, the US Dollar gapped lower and was down across the board. However, sentiment was almost immediately restored and the greenback was on its way to close the gap. The Japanese Yen weakened while the Australian and New Zealand Dollars rose.
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IG Client Sentiment Index Chart of the Day: AUD/USD
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Retail trader data shows 39.3% of AUD/USD traders are net-long with the ratio of traders short to long at 1.54 to 1. In fact, traders have remained net-short since Dec 19 when AUD/USD traded near 0.75664; price has moved 3.7% higher since then. The percentage of traders net-long is now its lowest since Feb 22 when AUD/USD traded near 0.78379. The number of traders net-long is 27.1% lower than yesterday and 13.4% lower from last week, while the number of traders net-short is 4.5% higher than yesterday and 9.9% higher 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. Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger AUD/USD-bullish contrarian trading bias.
Five Things Traders are Reading:
- EUR/USD Weekly Technical Forecast: Euro Top or Correction? Soon Find Out by Paul Robinson, Market Analyst
- Japanse Yen Vulnerable as Anxious Markets Find Relief by Ilya Spivak, Sr. Currency Strategist
- Australian Dollar May Leave Its US Cousin To Make The Weather by David Cottle, Analyst
- New Zealand Dollar Looks to GDP Hype, US CPI & Trade Developments by Daniel Dubrovsky, Jr. Currency Analyst
- Burning Coals and US Treasuries: USD Remains in the Fiscal Cross-Fire by James Stanley, Currency Strategist
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