Asia AM Digest: USD Continues Higher, Yen Falls as Nikkei 225 Rises
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The US Dollar rose about 1 percent on Wednesday, putting in its largest daily gain in more than five months. Greenback’s push higher was accompanied with rising local front-end government bond yields. This hinted at firming hawkish Fed monetary policy expectations.
Meanwhile the anti-risk Japanese Yen was one of the worst performing currencies. It spent most of the day declining as the Nikkei 225 rose in after-hours trade. News that North Korea wants to hold a summit talk with Japan probably inspired some confidence towards the end of the day. Sentiment linked currencies like the Australian Dollar outperformed.
The Canadian Dollar was also a strong performer thanks to some political developments. US Trade Representative Robert Lighthizer said that he is hopeful and optimistic of a new NAFTA deal in the near-term.
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IG Client Sentiment Index Chart of the Day: USD/JPY
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Retail trader data shows 64.4% of USD/JPY traders are net-long with the ratio of traders long to short at 1.81 to 1. In fact, traders have remained net-long since Dec 29 when USD/JPY traded near 113.533; price has moved 6.3% lower since then. The percentage of traders net-long is now its lowest since Feb 18 when USD/JPY traded near 106.259. The number of traders net-long is 8.6% lower than yesterday and 14.7% lower from last week, while the number of traders net-short is 14.7% higher than yesterday and 25.4% higher 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. Yet traders are less net-long than yesterday and compared with last week. Recent changes in sentiment warn that the current USD/JPY price trend may soon reverse higher despite the fact traders remain net-long.
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