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A Look Ahead – RBA Statement on Monetary Policy, Philippine Inflation
During Friday’s Asian session, we will get the RBA’s statement on monetary policy and Caixin China Composite and Services PMIs. The former will offer a fresh set of inflation projections which may give an idea of where rates could go in the future. The latter may spark some volatility in currencies whose associated countries are key trading partners with China. Those are ones like the Australian and Singapore Dollars.
Speaking of ASEAN bloc currencies, the Philippine Peso may rise on a local CPI report. Inflation is expected to print at its highest pace since September 2011. This would also bring prices further away from the upper boundary of the central bank’s (Bangko Sentral ng Pilipinas) target. Such an outcome could increase rate hike expectations.
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Current Market Developments – Yen Gains as Sentiment Sours
The anti-risk Japanese Yen appreciated as the majority of benchmark indexes from Asia, Europe and the US were down in the red. Risk trends suffered as Iran’s Foreign minister Mohammad Javad Zarif said that the country won’t renegotiate the nuclear deal. He also called for compliance from the US and not appeasement.
This development crossed the wires after Israel’s Prime Minister lowered the chances that the US may not extend sanction waivers on Iran from earlier this week. The deadline for President Donald Trump to do this is May 12. Crude oil prices rose in the aftermath, probably on supply disruption fears.
Prior Session Recap – USD and GBP Fell
The US Dollar finished the day cautiously lower against its major counterparts on Thursday. The day before, the currency rose in the aftermath of this month’s FOMC monetary policy announcement as the yield curve steepend. However, during the first half of yesterday’s session, the greenback fell as other relatively high-yielding currencies rose. Those being the Australian and New Zealand Dollars.
Worse-than-expected UK Services PMI readings helped send the British Pound on a dive once again. Sterling depreciated alongside local front-end government bond yields, suggesting that the probability of a rate hike this month from the Bank of England is almost all but priced out. Overnight index swaps now give a 9% chance of a BOE hike, which is down from about 95% confidence seen back in early April.
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IG Client Sentiment Index Chart of the Day: USD/JPY
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Retail trader data shows 52.6% of USD/JPY traders are net-long with the ratio of traders long to short at 1.11 to 1. In fact, traders have remained net-long since Dec 29 when USD/JPY traded near 113.202; price has moved 3.6% lower since then. The number of traders net-long is 12.4% lower than yesterday and 8.9% lower from last week, while the number of traders net-short is 4.6% lower than yesterday and 5.7% 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. 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:
- FX Price Action Setups Ahead of Non-Farm Payrolls by James Stanley, Currency Strategist
- Crude Oil Price Forecast: Hedging Picks Up Alongside Bullish Outlook by Tyler Yell, CMT, Forex Trading Instructor
- Canadian Dollar Rate Forecast: CAD Ready To Pivot Against US Dollar by Tyler Yell, CMT, Forex Trading Instructor
- USD/JPY Bullish Momentum Unravels Ahead of U.S. NFP Reportby David Song, Currency Analyst
- US Dollar: A Bullish and Bearish Case Ahead of Non-Farm Payrollsby James Stanley, Currency Strategist
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— Written by Daniel Dubrovsky, Junior Currency Analyst for DailyFX.com
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