Asia AM Digest: S&P Up Despite China Tariffs, Oil Saved by EIA

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Sentiment-linked currencies like the Australian and New Zealand Dollars outperformed on Wednesday. During the first half of the day, they rose alongside local front-end government bond yields as the US Dollar fell. This hinted that traders were more interested in other higher-yielding alternatives to the greenback.

Shortly after, news that China plans on reciprocal tariffs on $50 billion US goods sent stocks lower during the Asian session. However, sentiment quickly rebounded hours later after US market open. There, the S&P 500 fell 1.5 percent immediately but finished the day 1.16% higher.

Traders’ concerns seemed to abate as President Donald Trump said that “we are not in a trade war with China”. In addition towards the end of the day, Mr. Trump soften a key NAFTA demand on automotive content. Before that, Canada’s Foreign Affairs Minister Chrystia Freeland spoke and noted that the two countries are ‘making good progress’ on NAFTA.

Not surprisingly, the Canadian Dollar rose amidst these developments. Anti-risk currencies like the Japanese Yen and Swiss Franc pulled back as the importance of safety was pushed aside by investors for a different day.

Meanwhile, oil prices were saved by official EIA inventory data which showed crude oil inventories contracting by the most since the early weeks of January. Oil was actually on its way lower during the first half of the day as the greenback fell. The 2017 trend line seems to have kept prices at bay.

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IG Client Sentiment Index Chart of the Day: USD/JPY

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Retail trader data shows 67.8% of USD/JPY traders are net-long with the ratio of traders long to short at 2.11 to 1. In fact, traders have remained net-long since Dec 29 when USD/JPY traded near 113.533; price has moved 6.1% lower since then. The number of traders net-long is 0.6% lower than yesterday and 2.4% higher from last week, while the number of traders net-short is 2.8% lower than yesterday and 10.5% 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.

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3. Gold Prices Hold Bearish Channel as Bulls Shy Away from Big-Picture Resistance by James Stanley, Currency Strategist
4. S&P 500 Bears Make Way for Bulls by Dylan Jusino, DailyFX Research
5. AUD/JPY Price Analysis: Is the Correction Over? by Michael Boutros, Currency Strategist

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