Asia AM Digest: From Risk off To Risk on, Yen Down and S&P 500 Up
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The anti-risk Japanese Yen reversed its gains from yesterday, depreciating against its major counterparts on Tuesday. Its decline was accompanied with a pickup in sentiment during the US session, which was quite the opposite of what happened yesterday. Higher-yielding currencies like the Australian and New Zealand Dollars gained.
The S&P 500 rose as much as 1.3%, with the Dow Jones Industrial and Nasdaq Composite up 1.6% and 1% respectively. There was a report today that the White House isn’t looking to follow through with Trump’s prior attacks on Amazon.com. This overshadowed earlier trade developments that soured the markets.
Prior to the Amazon report, China notified the World Trade Organization that is has the “right to apply countermeasures” that are equivalent to the amount of trade impacted by the US tariffs. This opens the door for the country to tax additional US products.
Meanwhile the Canadian Dollar outperformed. Towards the end of yesterday’s session, Trump was reported pushing for a NAFTA deal within the next couple of weeks. The currency appeared to spend the day catching up on yesterday’s news uninterrupted.
Closer to the end of today’s session, the US Trade Representative issued a list of Chinese products set for tariffs. It said it will impose them on about $50 billion of imports. Less than two hours later, China condemned the list saying it violates WTO principles. The country is planning on reciprocal tariffs on US products.
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IG Client Sentiment Index Chart of the Day: NZD/USD
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Retail trader data shows 35.6% of NZD/USD traders are net-long with the ratio of traders short to long at 1.81 to 1. In fact, traders have remained net-short since Mar 20 when NZD/USD traded near 0.7178; price has moved 1.2% higher since then. The number of traders net-long is 16.7% lower than yesterday and 25.3% lower from last week, while the number of traders net-short is 4.2% higher than yesterday and 12.4% lower 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:
- S&P 500 Starts Q2 on a Sour Note as EUR/USD Tests Support by James Stanley, Currency Strategist
- USDJPY May Rise With Recent Shifts in Sentiment by Dylan Jusino, DailyFX Research
- AUD/USD Technical Outlook: Price Testing Critical Uptrend Support by Michael Boutros, Currency Strategist
- A War to Trade More, Not Less - What’s Behind US-China Tariffs by Christopher Vecchio and Renee Mu, Sr. Currency Strategist/Currency Analyst
- AUD/JPY and NZD/JPY Might Be on the Verge of Reversals by Daniel Dubrovsky, Junior Currency Analyst
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