Asia AM Digest: Markets Await US Syria Action, AUD Could Reverse

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After a rather rough few days, the US Dollar outperformed on Thursday rising by the most since a week ago. Not only was its appreciation accompanied with rising local bond yields, but also it gained with stocks throughout the day. This was in-part thanks to easing geopolitical tensions pertaining to Syria and relatively positive news in regards to trade developments.

First, US President Donald Trump scheduled a meeting on Syria for Thursday and said that he is “looking very seriously, closely about the situation”. His Defense Secretary Jim Mattis cautioned that a strike could ‘escalate out of control’. Later on, he said that trade talks with China are going well. Then, Mr. Trump was considering rejoining the Asia-Pacific TPP after withdrawing from it shortly after taking office.

Amidst the improvement in sentiment, anti-risk currencies like the Japanese Yen and Swiss Franc underperformed. Meanwhile, higher-yielding ones like the Australian and New Zealand Dollars did quite the opposite. The Euro was notably weaker amidst rather dovish ECB meeting minutes. Gold prices declined as expected after getting stuck under a critical resistance area.

Looking ahead, the unscheduled Chinese new yuan loans have yet to be released and there is a chance that they may cross the wires later today. Meanwhile, their trade balance data is set to come out at 2:00 GMT. Both these events may spark some volatility in the Australian Dollar, which is at risk of a reversal. In addition, keep an eye out for what Mr. Trump decides on for Syria action. It may suddenly impact sentiment and spike volatility across the markets.

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Retail trader data shows 67.6% of traders are net-long with the ratio of traders long to short at 2.09 to 1. In fact, traders have remained net-long since Dec 29 when USDJPY traded near 113.533; price has moved 5.8% lower since then. The number of traders net-long is 6.3% higher than yesterday and 5.8% higher from last week, while the number of traders net-short is 2.1% lower than yesterday and 3.0% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests USDJPY 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 USDJPY-bearish contrarian trading bias.

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— Written by Daniel Dubrovsky, Junior Currency Analyst for

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