Euro Down on Draghi, Chinese Shares Vulnerable – Asia Market Open
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Thursday’s US Session Developments – Euro Weakness on Draghi Pushes USD Higher
Top tier event risk during Thursday’s trading session was arguably the ECB rate decision, with the following press conference hosted by President Mario Draghi generating much of market volatility as expected. The end result was a weaker Euro across the board which helped lift its liquid alternative, the US Dollar, and offer it its largest daily gain since July 11 which was over two weeks ago.
Initially, the Euro edged optimistically higher as Mr. Draghi noted that uncertainty around the inflation outlook is receding. However, those gains were pared shortly after as the ECB’s head noted that the markets are tightly aligned with their guidance. Overnight index swaps are signaling a rate hike as likely in October 2019. Eurozone bond yields tumbled, signaling decreasing hawkish ECB monetary policy bets.
Additional Comments From Mario Draghi:
- Uncertainty related to trade remains prominent
- Significant monetary policy stimulus still needed
- Sees inflation around current levels for rest of the year
- Underlying inflation to pick up toward end of year
- Juncker, Trump deal is a good sign
- Euro has appreciated considerably over past 12 – 18 months
- Sees solid growth in second half
Broad Euro weakness and general US Dollar strength weighed on alternatively high-yielding FX such as the AustralianDollar as anticipated. The New Zealand Dollar also edged lower. Gold prices, being an anti-fait asset, tumbled as the greenback appreciated. Meanwhile, crude oil prices rallied towards the second half of Thursday’s session. With the ECB behind us, the commodity was able to continue capitalizing on yesterday’s EIA dramatic inventory drawdown.
A Look Ahead – Chinese Shares Look Vulnerable
A sparse economic data offering during Friday’s trading session will allow Asian/Pacific benchmark indexes to consolidate and finish absorbing this week’s most prominent economic and geopolitical developments.
Reports crossed the wires that US President Donald Trump still retains leverage to impose tariffs if they and the EU cannot agree on a deal. Until this threat fully subsides, it could continue preventing equities from achieving significant gains. Meanwhile, China stocks still look vulnerable as the US/EU trade deal intensifies the Chinese front of the US trade war.
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IG Client Sentiment Index Chart of the Day: USD/JPY
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Retail trader data shows 57.0% of USD/JPY traders are net-long with the ratio of traders long to short at 1.33 to 1. The number of traders net-long is 1.0% higher than yesterday and 27.4% higher from last week, while the number of traders net-short is 6.2% lower than yesterday and 27.2% 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.
Five Things Traders are Reading:
- US-China Trade War Enters New Phase amid Yuan Depreciation Christopher Vecchio, CFA, Sr. Currency Strategist
- Weekly Technical Perspective on Euro vs Japanese Yen (EUR/JPY) by Michael Boutros, Currency Strategist
- Gold Price Forecast: Subdued Rebound Keeps Bearish Trend Intact by David Song, Currency Analyst
- USD Undeterred by Jump in Advance Goods Trade Balance Deficit by Peter Hanks, DailyFX Research Team
- Dow Jumps to Fresh Four-Month Highs After Fibonacci Support 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.