Asia AM Digest: Sentiment Turns Lower as USD Falls, Yen May Rise
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Current Developments – Risk Trends Deteriorate After Consolidation, USD Falls
After a couple of days of consolidation, sentiment turned for the worst on Thursday as European and American shares declined. Some newswires attributed this to Daimler AG (a German multinational auto corporation) cutting its outlook on a possible impact of tariffs on corporate profits. This sent carmaker stocks lower such as Mercedes-Benz.
Then, as Wall Street came online, the US Philadelphia Business Outlook clocked in at 19.9 in June versus 29.0 expected. This was the lowest outcome since November 2016. The US Dollar, already weakened by a stronger British Pound on a hawkish Bank of England rate decision, fell further alongside local government bond yields. This suggested ebbing hawkish Fed monetary policy expectations.
Sentiment-linked currencies such as the Australian and New Zealand Dollars declined. The latter came under intense selling pressure during the Asia trading session amidst ebbing demand for New Zealand bonds. Anti-risk units such as the Japanese Yen and Swiss Franc appreciated cautiously.
As the markets transitioned to Friday’s trading session, the committee overseeing the OPEC+ agreement recommended boosting oil production by 1 million barrels per day. However, in practice this would translate into about a 600k b/d increase due to some members being unable to raise output. Crude oil prices were rather mute amidst the update as the markets await Friday’s OPEC+ meeting.
A Look Ahead – Yen May Rise on Sentiment, Not Inflation Data
Top-tier economic event risk during the Friday Asian trading session is May’s Japan inflation data. There, the Yen is unlikely to show a meaningful reaction given that CPI is anticipated to remain in line with April. Lately, the Japanese Yen has been more interested in risk trends as expected and the unit may focus on sentiment rather than local price data.
Given the rather poor performance in stocks during the European and US session, anti-risk currencies like the Japanese Yen could gain if Asian stocks echo those loses. Meanwhile, sentiment-linked ones like the Australian and New Zealand Dollars could fall. For the latter, we will get local credit card spending data. Signs of increasing consumption could boost the Kiwi Dollar, but risk trends could keep it under pressure.
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Retail trader data shows 71.4% of NZD/USD traders are net-long with the ratio of traders long to short at 2.49 to 1. In fact, traders have remained net-long since Apr 22 when NZD/USD traded near 0.73531; price has moved 6.5% lower since then. The number of traders net-long is 9.2% higher than yesterday and 11.8% higher from last week, while the number of traders net-short is 21.3% lower than yesterday and 29.9% lower 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. Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger NZD/USD-bearish contrarian trading bias.
Five Things Traders are Reading:
- Weekly Technical Perspective on the British Pound (GBP/USD) by Michael Boutros, Currency Strategist
- USD/CAD Rally at Risk on Strong Canada Consumer Price Index (CPI) by David Song, Currency Analyst
- NZD/USD Price Analysis: Kiwi Testing Support at Fresh Yearly Lows by Michael Boutros, Currency Strategist
- Becoming a Better Trader – How to Handle a Drawdown by Paul Robinson, Market Analyst
- US Dollar Pulls Back, GBP/USD Bounces on Hawkish BoE Twist by James Stanley, Currency Strategist
--- Written by Daniel Dubrovsky, Junior Currency Analyst for DailyFX.com
To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.