Current Market Developments – US Dollar Still in Uptrend Post CPI
After the US Dollar accelerated its decline as local core inflation missed expectations, it rose as sentiment picked up. The S&P 500 rallied and finished the day 0.94% higher, probably due to the CPI miss reducing the potential for tightening credit conditions. However, the greenback soon resumed its depreciation as the yield curve flattened. This signaled a lower outlook for Fed interest rates in the future.
Keep in mind that just yesterday, the US Dollar touched another new 2018 high. So perhaps a partial correction may have been warranted as traders booked some profits. Technically speaking, the greenback’s uptrend since mid-April is still intact.
A Look Ahead – Chinese New Yuan Loans? Definitely HK GDP
Up ahead, we may get the unscheduled Chinese new yuan loans data that may also come out at any time between now and next week Tuesday. Currencies like the Australian Dollar and some ASEAN bloc ones like the Indonesian Rupiah may be impacted due to their respective countries having key trading relationships with the world’s second largest economy.
Later on, we will get Hong Kong GDP. For similar key trading relationship reasons, currencies like the Singapore Dollar or Philippine Peso may see some volatility on the data. For the latter unit, we just had its associated central bank rate decision. The Bangko Sentral ng Pilipinas raised rates and said that it is ready to undertake further action as needed.
Prior Session Recap – British Pound Falls on BoE Rate Hold
In addition to the US Dollar, the British Pound also underperformed as they Bank of England left rates unchanged and decreased near-term hawkish monetary policy expectations. There, the central bank noted that inflation may have peaked. Meanwhile, the sentiment-linked Australian Dollar appreciated as Wall Street finished the day in the green.
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IG Client Sentiment Index Chart of the Day: USD/JPY
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Retail trader data shows 56.3% of USD/JPY traders are net-long with the ratio of traders long to short at 1.29 to 1. In fact, traders have remained net-long since Dec 29 when USD/JPY traded near 112.306; price has moved 2.3% lower since then. The number of traders net-long is 3.0% higher than yesterday and 3.2% higher from last week, while the number of traders net-short is 5.0% lower than yesterday and 1.8% 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:
- Central Bank Weekly: British Pound Slides Alongside 2018 BOE Rate Hike Odds by Christopher Vecchio, Sr. Currency Strategist
- US Dollar Price Action Setups After CPI-Fueled Pullback by James Stanley, Currency Strategist
- USD/CAD Bearish Series Takes Shape Ahead of Canada Employment Reportby David Song, Currency Analyst
- Canadian Dollar Rate Forecast: Loonie Strength Emerges On Soft USD by Tyler Yell, Forex Trading Instructor
- USD/JPY Rate Forecast: Viva la Resistance As 110 Continues To Hold by Tyler Yell, Forex Trading Instructor
— Written by Daniel Dubrovsky, Junior Currency Analyst for DailyFX.com
To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter
