Weekend Developments – US President Donald Trump Withdraws Support for G7 Communique
FX markets are off to a rocky start at the beginning of this week’s session, reacting to this weekend’s G7 leaders summit. There, US President Donald Trump retracted US support for the final communique after initially endorsing it. The anti-risk Japanese Yen was higher while the sentiment-linked Australian and New Zealand Dollars headed lower.
Increased tensions between the US and Canada left their mark on the Loonie. Compared to the Aussie and Kiwi, the Canadian Dollar was notably weaker at Monday open. During the summit, Canada’s Prime Minister Justin Trudeau said that they will be moving forward with counter-tariffs. Mr. Trump responded by highlighting that they are looking into auto import tariffs. This further adds uncertainty to NAFTA talks.
A Look Ahead – Will Sentiment Look Forward to Trump/Kim Summit?
Monday’s Asian trading session may see risk appetite deteriorate, especially if automotive shares drive benchmark indexes lower on renewed US auto import tariff threats. We have seen this scenario unfold back in late-May when Toyota and Honda stocks weighed on Japanese equities. Such an outcome may add more gains to the Japanese Yen while keeping the Australian and New Zealand Dollars suppressed.
On the other hand, optimism ahead of the June 12 summit with Donald Trump and North Korean Leader Kim Jong Un presents as an argument for sentiment to improve. After arriving in Singapore for the meeting, Mr. Trump said that he feels ‘very good’ about it. Furthermore, German Chancellor Angela Merkel said that Trump’s G7 action won’t break relations with the US and that they won’t seek to escalate their tone.
Friday’s Session Recap – Canadian Dollar Rallies Despite Jobs Contraction
USD/CAD initially rose aggressively when Canada unexpectedly lost 7.5k jobs in May. However, the Canadian Dollar then reversed course and appreciated in the aftermath. This may have been due to traders focusing in on the fact that wage growth accelerated 3.9% versus 3.2% estimated. Local bond yields also rallied, signaling firming hawkish Bank of Canada monetary policy expectations.
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IG Client Sentiment Index Chart of the Day: NZD/USD
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Retail trader data shows 61.3% of traders are net-long with the ratio of traders long to short at 1.59 to 1. In fact, traders have remained net-long since Apr 22 when NZD/USD traded near 0.73417; price has moved 4.2% lower since then. The percentage of traders net-long is now its lowest since May 11 when NZD/USD traded near 0.69625. The number of traders net-long is 13.1% lower than yesterday and 12.9% lower from last week, while the number of traders net-short is 4.9% higher than yesterday and 25.7% higher from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests NZD/USD 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 NZD/USD price trend may soon reverse higher despite the fact traders remain net-long.
Five Things Traders are Reading:
- EURUSD Weekly Technical Analysis: Buy Euro on a Dip? Fed & ECB Ahead by Paul Robinson, Market Analyst
- Day One of G-7 Summit Concludes with Little Progress to Show by Peter Hanks, DailyFX Research
- Australian Dollar Could Well Feel Rate Differential Chills Againby David Cottle, Analyst
- The BoJ is On Deck, but Beware of Risk Trends From FOMC, ECBby James Stanley, Currency Strategist
- US Dollar Uptrend May Regain Momentum on G7, FOMC Outcomes by Ilya Spivak, Sr. Currency Strategist
--- Written by Daniel Dubrovsky, Junior Currency Analyst for DailyFX.com
To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter