Asia AM Digest: ECB President Hurts Euro, Merkel Unnerves Markets
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The Euro was the worst performing major on Wednesday, held down by comments from ECB’s President Mario Draghi. He noted the currency’s strength could weigh on inflation down the line. If you look back to 2017, it appreciated over 15% against the US Dollar and went up against all other majors.
The anti-risk Japanese Yen on the other hand had a more robust session, boosted by the possibility of more US tariff retaliation threats. Germany’s Chancellor Angela Merkel noted that she was unsure if Europe can get exemptions from the tariffs and that a response could come in such a scenario. Stocks took a hit from these developments and Wall Street finished the day mostly in the red once more.
Meanwhile the US Dollar was unphased by a worse-than-expected local February retail sales report. While the data was mostly sour, some of the outcomes were in-line with January’s statistics and in some cases even better.
Towards the end of the day, the New Zealand Dollar took a hit after softer local GDP data cooled RBNZ rate hike expectations. We will see what the central bank has to say about the release next week at their March monetary policy announcement.
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IG Client Sentiment Index Chart of the Day: USD/JPY
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Retail trader data shows 71.1% of USD/JPY traders are net-long with the ratio of traders long to short at 2.46 to 1. In fact, traders have remained net-long since Dec 29 when USD/JPY traded near 112.595; price has moved 5.8% lower since then. The number of traders net-long is 5.4% higher than yesterday and 3.0% higher from last week, while the number of traders net-short is 11.1% lower than yesterday and 11.3% 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:
- New Zealand Dollar Unable to Fall Below Support After Soft GDP by Daniel Dubrovsky, Jr. Currency Analyst
- US Dollar Index (DXY) Forecast: WH Economic Advisor Favors Strong USD by Tyler Yell, CMT, Forex Trading Instructor
- Canadian Dollar Rate Forecast: Poloz Gives CAD Bulls a Cold Shower by Tyler Yell, CMT, Forex Trading Instructor
- GBP/USD: February Flop Leads to March Strength, 1.4000 Re-Test Likely by James Stanley, Currency Strategist
- With 38% of Traders Net-Long, S&P 500 May Climb Higher by the DailyFX Research Team
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