Asia AM Digest: Yen Could Gain if Asian Shares Follow US Lower

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Current Market Developments – Yen Gains as Wall Street Tumbles

The anti-risk Japanese Yen put in an aggressive recovery towards the end of Tuesday’s session after USD/JPY rose to its highest since early February. A decline in sentiment sent the S&P 500 more than 1.3% lower. This followed yesterday’s earnings beat from Google’s parent company Alphabet in after hours. Investors seemed more concerned about their rising costs though.

In addition to declines in information technology today, industrials and materials did much worse. With the earnings season still in full swing, Caterpillar Inc. reporting that their first quarter will be a “high water mark for the year” also didn’t bode well for sentiment as their shares tumbled almost 11 percent. The high-yielding US Dollar fell as risk trends turned for the worse, but finished the day rather mixed as the US 10-year government bond yield touched 3 percent.

A Look Ahead – Will Asian Shares Echo US Declines?

A lack of key economic calendar event risk during Wednesday’s Asia session turns the focus to risk trends. With the rather poor performance on Wall Street, all eyes will be on Tokyo open. If stocks there echo declines seen in the US session, then the anti-risk Yen could have some room to appreciate. This would be at the cost of sentiment-linked currencies like the Australian and New Zealand Dollars.

Prior Session Recap – Bank of Indonesia Intervention

The Australian Dollar showed a choppy reaction to a rather mixed local inflation report. Australia’s headline inflation rate missed expectations, but the RBA’s target for inflation did quite the opposite. Meanwhile the Euro dipped through to 1.2180 earlier in the session after an uninspiring German IFO survey.

Meanwhile, the Indonesian Rupiah appreciated and was up across the board. As Tuesday’s session began, Bank of Indonesia stepped in an intervened in the foreign exchange market to stabilize its currency. On Monday, USD/IDR rose to its highest since early 2016.

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IG Client Sentiment Index Chart of the Day: USD/JPY

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Retail trader data shows 54.6% of USD/JPY traders are net-long with the ratio of traders long to short at 1.2 to 1. In fact, traders have remained net-long since Dec 29 when USD/JPY traded near 113.452; price has moved 3.9% lower since then. The number of traders net-long is 7.5% lower than yesterday and 21.5% lower from last week, while the number of traders net-short is 8.5% higher than yesterday and 15.0% higher 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. Yet traders are less net-long than yesterday and compared with last week. Recent changes in sentiment warn that the current USD/JPY price trend may soon reverse higher despite the fact traders remain net-long.

Five Things Traders are Reading:

  1. EUR/USD Technical Analysis: All Eyes on Congestion Area Support by Ilya Spivak, Sr. Currency Strategist
  2. Crude Oil Price Forecast: Bullish Demand Narrative May Lift Oil Further by Tyler Yell, CEWA-M, Head Forex Trading Instructor
  3. US Dollar Price Action Setups Ahead of ECB, BoJ by James Stanley, Currency Strategist
  4. Trader Sentiment is Roughly Balanced for the S&P by Dylan Jusino, DailyFX Research
  5. NZD/USD Eyes 2018-Low as 10-Year U.S. Treasury Yield Spikes Above 3.00% by David Song, Currency Analyst

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— Written by Daniel Dubrovsky, Junior Currency Analyst for

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