Asia AM Digest: CHF Falls, JPY Not So Much. Japan Trade Data Due
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The anti-risk Swiss Franc was overall the worst performing major on Tuesday as sentiment improved. It fell as the S&P 500 and Nikkei 225 rose during the second half of the day. Meanwhile, the higher-yielding US Dollar outperformed while similar-yielding Australian and New Zealand Dollars didn’t do so well. With the latter two losing their yield advantage over the greenback, perhaps traders were more interested in the one which is more liquid.
The improvement in sentiment seemed to be attributed to more positive developments in US earnings. Netflix shares also rose as subscriber growth beat estimates. In addition, Fed commentary probably helped the ‘risk on’ environment. John Williams, who will be the next head of the New York Fed, said that he expects the US economy to continue improving.
One currency that was a standout on Tuesday was the Japanese Yen. While it was on the same path as the Swiss Franc, there was a spurt of gains during the middle of the session. That helped it end the day cautiously higher. This may have been due to reports that the US wants to see a trade pact with Japan from President Donald Trump’s top economic adviser Larry Kudlow. This crossed the wires ahead of a meeting Trump had today with Japan’s Prime Minister Shinzo Abe.
Meanwhile the British Pound underperformed despite the lowest UK unemployment rate since 1975. This may have been due to average weekly earnings missing expectations. The markets have lately been more interested in wage growth as opposed to job gains.
Looking ahead, we will get March’s Japan trade balance report. The surplus is expected to rise, signaling that exports will outnumber imports. While this may not cause a significant reaction in the Japanese Yen, it may do so for ASEAN bloc currencies like the Malaysian Ringgit. This is because their respective countries have key trading relationships with Japan.
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IG Client Sentiment Index Chart of the Day: EUR/JPY
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Retail trader data shows 42.4% of EUR/JPY traders are net-long with the ratio of traders short to long at 1.36 to 1. In fact, traders have remained net-short since Apr 09 when EUR/JPY traded near 131.51; price has moved 0.5% higher since then. The number of traders net-long is 11.0% lower than yesterday and 1.4% lower from last week, while the number of traders net-short is 3.1% lower than yesterday and 13.7% higher from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EUR/JPY 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 EUR/JPY-bullish contrarian trading bias.
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- Bearish USD/JPY Series Takes Shape Despite Hawkish Fed Rhetoric by David Song, Currency Analyst
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--- Written by Daniel Dubrovsky, Junior Currency Analyst for DailyFX.com
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