- July 18, 2018
- Posted by: Trading
- Category: Alerts
US Session Developments – Oil, Stocks Up and USD Down
The US Dollar, which rallied amidst British Pound weakness on weak UK inflation, found itself paring most if its gains during the second half of the day. There, a rise in stocks as sentiment improved dampened the appeal of haven assets, which the greenback is ubiquitous for given its highly liquid status. S&P 500’s 0.22% gain was partly attributed to a pickup in financials as major banks reported solid earnings reports.
In addition, sentiment-linked crude oil prices rallied despite an increase in US crude oil inventories. The official EIA report showed stockpiles rising about 5.8m barrels last week, markets were anticipating a contraction of 4.1m. Not surprisingly, the Canadian Dollar appreciated as its US counterpart headed lower, but the Loonie was left little changed due to earlier greenback gains.
The US Dollar also could not find much support from more commentary out of the Fed. Chair Jerome Powell had his second day of Congressional testimony, but he started off with some concerning notes. For starters, Mr. Powell said the he is slightly more worried by lower inflation still, adding that wages have been somewhat slow in moving up. This ran a little bit more dovish compared to yesterday’s testimony.
Additional Comments From Jerome Powell:
- If trade dispute leads to protectionism, it will be bad
- Nations open to trade have higher incomes and productivity
- No plan to change pace of balance sheet roll-off
- Broad range of wage indicators have moved higher
- US fiscal policy on unsustainable path for some time
- Just beginning to see effects of tariffs
- Nothing really flashing red in financial markets
- Tariffs may lift prices at a time of weaker growth
However, the US Dollar bottomed when Mr. Powell brought up some upbeat notes below:
- Sees labor market continuing to strengthen
- Gradually hiking for now right way to prolong expansion
A Look Ahead – AUD Faces Jobs Data, Risk of Trade War Still There
Ahead, the top tier event risk during Thursday’s Asian trading session will be June’s Australian jobs report. There, the country is expected to add more jobs (16.5k) as unemployment remains steady at 5.4%. While the Australian Dollar may see some short-term volatility on this event depending on the outcome, long-term follow-through may be limited. At the moment, the RBA is patient on changing rates for now.
There may be a chance that Asian shares follow Wall Street gains, resulting in more risk-on trading. Such a scenario could bode-ill for the anti-risk Japanese Yen. However, keep in mind that there are still tensions in regards to trade between the two largest economies.
On Wednesday, China’s Commerce ministry urged the US to stop restrictive moves violating WTO rules. Meanwhile, President Donald Trump’s top Economic Adviser Larry Kudlow blamed China’s President Xi Jinping for holding back talks on trade. Signs that more tariffs are coming, such as the proposed additional US $200b on Chinese import levies, can quickly reverse sentiment.
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IG Client Sentiment Index Chart of the Day: USD/JPY
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Retail trader data shows 41.0% of USD/JPY traders are net-long with the ratio of traders short to long at 1.44 to 1. In fact, traders have remained net-short since Jun 28 when USD/JPY traded near 110.058; price has moved 2.5% higher since then. The number of traders net-long is 3.7% lower than yesterday and 3.5% lower from last week, while the number of traders net-short is 1.9% lower than yesterday and 1.5% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests USD/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 USD/JPY-bullish contrarian trading bias.
Five Things Traders are Reading:
- Gold Vulnerable to Further Losses as Bearish Momentum Gathers Pace David Song, Currency Analyst
- GBP/USD: Net-Long Positions Continue Near Highest Yearly Levels by Yayati Tanwar, DailyFX Research Team
- USD/JPY Technical Outlook: Is Yen Relief in Sight? by Michael Boutros, Currency Strategist
- S&P 500: Price May Fall As Resistance Is Testedby Jake Schoenleb, DailyFX Research Team
- USD/JPY Rate Risks Fresh Monthly Highs as Overbought Signal Persistsby David Song, Currency Analyst
— Written by Daniel Dubrovsky, Junior Currency Analyst for DailyFX.com
To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter