Asia AM Digest: USD Liked Dovish ECB Notes, Then Sentiment Fell
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After a rather poor day, the US Dollar reversed course and put in its best performance in a week. Gains were realized during the first half of the day. There, dovish ECB comments from Governing Council member Erkki Liikanen sent local bond yields lower. He urged caution against tightening monetary policy too soon.
The Euro fell amidst this news, but it ended the day mixed against its major peers. However, it was down against the greenback. The markets lately have been more interested in returns outside of the US. Signs that one of their prospective candidates, the ECB and the Euro, may not be that answer probably sapped some of the currency’s appeal, benefiting the US Dollar.
There was a collapse in sentiment towards the second half of the day. News that the Trump administration is considering a crackdown on Chinese investments in technologies weighed down on the information technology sector. The S&P 500 finished in the red, but by not as much as the NASDAQ 100 which declined around 2.93%. This also reverses yesterday’s revival in sentiment where trade war fears ebbed.
Sentiment-linked currencies like the Australian Dollar suffered the most while the anti-risk Japanese Yen gained. US government bond yields also fell as investors bought into risk-free assets. The 10-year rate fell below 2.78%, which is a six-week low. The US Dollar pulled back some of its earlier gains, though not all of them. It seemed to be stuck between safe-haven appeal and diminishing hawkish Fed policy expectations.
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IG Client Sentiment Index Chart of the Day: NZD/USD
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Retail trader data shows 39.9% of NZD/USD traders are net-long with the ratio of traders short to long at 1.51 to 1. The number of traders net-long is 0.5% lower than yesterday and 17.6% lower from last week, while the number of traders net-short is 7.6% higher than yesterday and 20.3% 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:
- US Dollar Rallies to Resistance as Bears Come Back into the S&P by James Stanley, Currency Strategist
- USDJPY Breakout Likely, As Sentiment Shifts by Dylan Jusino, DailyFX Research
- USD/JPY Price Outlook: Is a Low in Place? by Michael Boutros, Currency Strategist
- Consumer Confidence Cools After February’s 17-Year Spike by Dylan Jusino, DailyFX Research
- EUR/USD, GBP/USD To Support as the USD Stages Late-Quarter Rally by James Stanley, Currency Strategist
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