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The anti-risk Japanese Yen was the best performing major on Wednesday as the threat of conflict between the US and Syria rose. About halfway into the session US President Donald Trump, in a tweet, taunted Russia saying to ‘get ready’ because missiles will be coming at Syria. He also said that “Russia vows to shoot down any and all missiles fired at Syria”.
Stocks did not take the news too well and havens such as US treasuries rallied amidst the news. However, later on Mr. Trump met with Defense Secretary Jim Mattis and it was reported that Trump did not settle on a plan. He was still weighing his options for military action against Syria. There was a rebound in sentiment, with currencies like the Australian and New Zealand Dollars climbing.
These geopolitical tensions also helped push crude oil prices higher despite EIA oil inventories increasing by the most since early March. The Canadian Dollar rallied amidst the rise in oil prices. Then, towards the end of the day, we had the FOMC meeting minutes.
There, relatively hawkish comments helped push the US Dollar higher temporarily. Members pointed out that they see ‘significant’ fiscal-policy growth boost over the next few years. A number of Fed officials saw the outlook warranting a steeper rate path. The S&P 500 fell after the minutes, after all prospects of tightening credit conditions bode ill for growth and stocks. The US Dollar, which now boasts a higher yield, accompanied the indexes’ descent.
Additional comments from FOMC minutes:
- Strong majority of Fed officials saw trade war as downside risk
- Fed sees no big growth impact from steel/aluminum tariffs alone
- Almost all Fed officials saw gradual rate hikes as appropriate
- Many officials had greater confidence in outlook for inflation
Looking ahead, Trump is expected to meet with governors and congress on Thursday to discuss the tariff agricultural impact. We will also have a speech from Bank of Japan’s Governor Haruhiko Kuroda. Keep an eye out for how Asian stocks react to Wednesday’s developments.
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IG Client Sentiment Index Chart of the Day: USD/JPY
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Retail trader data shows 65.6% of USD/JPY traders are net-long with the ratio of traders long to short at 1.9 to 1. In fact, traders have remained net-long since Dec 29 when USD/JPY traded near 113.533; price has moved 5.9% lower since then. The number of traders net-long is 4.7% higher than yesterday and 5.7% lower from last week, while the number of traders net-short is 7.1% higher than yesterday and 3.7% 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.
Five Things Traders are Reading:
- Gold Prices Reverse After Aggressive Breakout into Long-Term Resistance by James Stanley, Currency Strategist
- US Dollar Index (DXY) Forecast: Falling as Bullish Catalysts Dissipate by Tyler Yell, CMT, Forex Trading Instructor
- Flock to Safe-Haven Assets Could Create S&P Buying Opportunity by Dylan Jusino, DailyFX Research
- EUR/USD Technical Outlook: Pullbacks to Offer Opportunity by Michael Boutros, Currency Strategist
- US Dollar Grinds at Support After Inflation Prints at One-Year Highs by James Stanley, Currency Strategist
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--- Written by Daniel Dubrovsky, Junior Currency Analyst for DailyFX.com
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