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Trump Sinks USD, Singapore Dollar Faces China GDP

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Monday was a day of overall US Dollar weakness as US President Donald Trump accused China and Russia of devaluing their currencies. The attack came at a time when the two largest economies are trying to compromise on tariff negotiations. Things were looking good last week on this front as sentiment rebounded when both Trump and China’s President Xi Jinping offered positive developments.

Nevertheless, Wall Street finished Monday’s session higher with the S&P 500 and Dow Jones up 0.81% and 0.87% respectively. This was in-part due to a rise in health-care supply companies which welcomed the news that Amazon Inc. shelved plans to sell pharmaceutical products. In addition, ebbing geopolitical tensions over Syria probably also contributed to the rise in stocks.

However, most currencies showed a rather mixed performance. Especially the ones that are sensitive to risk trends. This included the Japanese Yen, Australian and New Zealand Dollars. The British Pound was the best performing major across the board, almost perfectly inversely tracking the US Dollar. Crude oil prices declined, probably because of easing tensions around Syria.

Ahead, China’s first quarter GDP release is the top tier event risk during the Asian trading session. Data out of the country has been underperforming as of late, opening the door for a downside surprise. Such a scenario presents a potential risk for currencies like the Singapore Dollar or Malaysian Ringgit due to their affiliated countries having key trading relationships with China.

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Asia AM Digest: Trump Sinks USD, Singapore Dollar Faces China GDP

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Asia AM Digest: Trump Sinks USD, Singapore Dollar Faces China GDPAsia AM Digest: Trump Sinks USD, Singapore Dollar Faces China GDPAsia AM Digest: Trump Sinks USD, Singapore Dollar Faces China GDP

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

Asia AM Digest: Trump Sinks USD, Singapore Dollar Faces China GDP

CLICK HERE to learn more about the IG Client Sentiment Index

Retail trader data shows 44.6% of traders are net-long with the ratio of traders short to long at 1.24 to 1. In fact, traders have remained net-short since Apr 09 when EUR/JPY traded near 131.51; price has moved 0.9% higher since then. The number of traders net-long is 14.6% lower than yesterday and 22.1% lower from last week, while the number of traders net-short is 6.2% lower than yesterday and 12.1% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EUR/JPY prices may continue to rise. Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger EUR/JPY-bullish contrarian trading bias.

Five Things Traders are Reading:

  1. TIC Data Shows Chinese Appetite for US Assets Rose Before Tariffs by Peter Hanks, DailyFX Research
  2. USD/JPY Rate Forecast: Knock, Knock, Knocking on Key 108-Level by Tyler Yell, CMT, Forex Trading Instructor
  3. FX Overbought/Oversold: It’s Tough To be a British Pound Bear Out There by Tyler Yell, CMT, Forex Trading Instructor
  4. FX Markets Look to US Retail Sales, UK & Japanese CPI, BOC, & More by Christopher Vecchio, Sr. Currency Strategist
  5. Weekly Technical Perspective on NZD/USD, GBP/USD and EUR/NZDby Michael Boutros, Currency Strategist

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— Written by Daniel Dubrovsky, Junior Currency Analyst for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter

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Forex

AUD/USD May Fall With Asia Stocks After Wall Street Volatility

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Asia Pacific Market Open Talking Points

  • British Pound and New Zealand Dollars climbed. Former enjoyed Brexit news, latter rallied on CPI
  • S&P 500 recovered after risk-aversion dominated US markets on shutdown news. USD depreciated
  • AUD/USD may fall as market mood sours in Asia, jobs data misses expectations. Eyes chart support

See our study on the history of trade wars to learn how it might influence financial markets!

The British Pound and New Zealand Dollar were some of the best performing majors on Wednesday. Sterling continued rallying amid ebbing ‘No-Deal’ Brexit bets despite UK Prime Minister Theresa May leaving the door open to one. Meanwhile, the Kiwi Dollar enjoyed fading expectations of an RBNZ rate cut this year after a better-than-expected local inflation report.

For pro-risk currencies such as the Australian Dollar, the US trading session offered little fuel to extend their gains. White House Economic Adviser Kevin Hassett spoke and warned the continuation of the government shutdown could result in near-zero growth. After gapping higher, the S&P 500 traded lower as domestic government bonds rallied. After a slight rally later, the index closed +0.22%.

This signaled a flight-to-safety as risk capital flowed into haven assets. The US Dollar, which tends to benefit in this scenario, failed to capitalize on gains and ended the day cautiously lower. Falling yields alongside a fading Fed rate hike bets may have been a more prominent influence. Meanwhile the anti-risk Japanese Yen still ended the day lower, perhaps due to the Bank of Japan lowering inflation expectations.

Earlier in the day, US President Donald Trump warned China that tariffs could increase should a trade deal not be reached. As the markets then transitioned into Thursday’s session, the White House requested data on if the shutdown prolongs into March. This showed that it may continue for the time being. As such, these developments may adversely impact Asia Pacific benchmark stock indexes as markets turn risk-averse.

This could boost the Japanese Yen at the expense of the sentiment-linked Australian and New Zealand Dollars. Australia’s December jobs report will also cross the wires. Data out of the country has been tending to underperform relative to economists’ expectations as of late. Such an outcome could increase expectations of an RBA rate cut as AUD/USD falls. Overnight index swaps are pricing in a 34% chance of a cut later this year.

AUD/USD Technical Analysis

The continuation pattern outlined in my weekly Australian Dollar forecast appears to have been broken on the AUD/USD chart below. Typically, a “Pennant” is a continuation pattern. The descent under it may open the door to losses instead. Near-term support is at 0.70211 with resistance around 0.71645.

Each week I conduct a poll to see which Aussie crosses to cover in the technical forecast. You can participate in the poll by following me on twitter @ddubrovskyFX as well as to see timely updates on the Aussie Dollar.

AUD/USD Daily Chart

Chart of AUD/USD

Chart created in TradingView

US Trading Session

Chart of US Trading Session

Asia Pacific Trading Session

Chart of Asia Pacific Trading Session

** All times listed in GMT. See the full economic calendar here

FX Trading Resources

— Written by Daniel Dubrovsky, Junior Currency Analyst for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter



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Traders Net-Long Increases from Last Week

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EURUSD

65.7% OF TRADERS ARE NET-LONG

EURUSD: Retail trader data shows 65.7% of traders are net-long with the ratio of traders long to short at 1.91 to 1. In fact, traders have remained net-long since Jan 10 when EURUSD traded near 1.1554; price has moved 1.6% lower since then. The percentage of traders net-long is now its highest since Dec 31 when EURUSD traded near 1.1464. The number of traders net-long is 2.0% higher than yesterday and 27.2% higher from last week, while the number of traders net-short is 8.2% lower than yesterday and 4.3% higher from last week.

To gain more insight to how we use sentiment to power our trading, join us for our weekly Trading Sentiment webinar.

EURUSD SENTIMENT CONTINUES TO SUGGEST A BEARISH BIAS

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

Having trouble developing your strategy? Here’s the #1 mistake that traders make.

— Written by Nancy Pakbaz, CFA, DailyFX Research



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Oil Risks Larger Recovery as Inverse Head-and-Shoulders Takes Shape

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Oil Talking Points

Oil prices remain bid even as the International Monetary Fund (IMF) reduces its global growth forecast for 2019 and 2020, and the ongoing efforts by the Organization of the Petroleum Exporting Countries (OPEC) to stabilize the energy market may spur a larger recovery in crude as an inverse head-and-shoulders formation takes shape.

Image of daily change for major financial markets

Oil Risks Larger Recovery as Inverse Head-and-Shoulders Takes Shape

Image of daily change for crude oil prices

Fresh comments from OPEC Secretary-General Mohammad Barkindo suggest the group will continue to cut production over the coming months as the official insists that the ‘the market has started to respond positively’ at the World Economic Forum in Davos, Switzerland, and the current environment raises the risk for higher crude prices as Mr. Barkindo goes onto say that ‘we are beginning to see very sharp reductions in supply.’

Image of EIA U.S. field production of crude oil

In fact, OPEC and its allies may curb production throughout 2019 as updates from the U.S. Energy Information Administration (EIA) show field production climbing to 11,900K in the week ending January 11 after holding steady at 11,700K for three consecutive weeks, and the group may continue to combat the stickiness in Non-OPEC supply especially as Russia Minister of Energy, Alexander Novak¸ endorses a price range of $55-65bbl.

With that said, the advance from the December-low ($42.36) may gather pace as oil prices break out of the downward trend carried over from late-2018, with developments in the Relative Strength Index (RSI) fostering a constructive outlook for crude as the oscillator bounces back from oversold territory and carves a bullish formation. Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups.

Oil Daily Chart

Image of crude oil daily chart

  • Crude stages a near-term rebound following the failed attempts to test the June 2017-low ($42.05), and oil prices may continue to track higher as an inverse head-and-shoulders formation takes shape.
  • In turn, a break/close above the $55.10 (61.8% expansion) to $55.60 (61.8% retracement) region raises the risk for a larger reversal, with the next area of interest coming in around $57.40 (61.8% retracement) followed by the Fibonacci overlap around $59.00 (61.8% retracement) to $59.70 (50% retracement).

For more in-depth analysis, check out the 1Q 2019 Forecast for Oil

Additional Trading Resources

Are you looking to improve your trading approach? Review the ‘Traits of a Successful Trader’ series on how to effectively use leverage along with other best practices that any trader can follow.

Want to know what other markets the DailyFX team is watching? Download and review the Top Trading Opportunities for 2019.

— Written by David Song, Currency Analyst

Follow me on Twitter at @DavidJSong.



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