- The share of buy orders increased by 23 percentage points, and now they account for 62% of the market
- Trader's attitude towards the Buck slightly deteriorated, but still 59% of all participants are long the Dollar
- 30% of traders see USD/JPY above 124.5 by end of June
- Nearest significant resistance is represented by the weekly PP and 20-day SMA around 120.30, while closest support is 55-day SMA and weekly S1 at 119.05
- Upcoming events: FOMC Member Williams Speech, US CPI and Core CPI, US Flash Manufacturing PMI, US New Home Sales
According to the President of the Federal Reserve Bank of St. Louis James Bullard, markets should expect a greater volatility due to uncertainty over the Fed's future monetary policy decisions, especially when coming closer to the eventual increase of the federal funds rate. The same situation has already been observed in 2013, when the Fed decided to taper its bond purchases. It caused US Dollar's significant rise, growing yields for US Treasury's bonds and uplifted volatility on stock markets, while Mr. Bullard predicts it may happen again in the foreseeable future. Besides that, the St. Louis Fed's President has separately underlined strength of the American currency. He said that the European Central Bank's recent aggressive monetary policy decisions may have more influence on the Greenback's exchange rate than expectations of the Fed's rate hike. Along with that, he added that it is currently hard to predict, in which direction the euro-dollar exchange rate might go in the future.
Among other news on Monday, US existing home sales showed a worse-than-forecasted result for a fourth time in a row in February. Despite that, sales rose 1.2% to 4.88 million on the annualized basis during the previous month, up from the 8-month low of 4.82 million seen in January when they slipped as much as 4.9% on a monthly basis.
Simon Smith, head of research FxPro, is skeptical with respect to the ability of the BoJ to boost growth and inflation. According to Simon, "the effectiveness of it [QE] diminishes the more you do, it was seen with the Fed as well." This leads to a conclusion that "the onus is still lying very much with the government; for them to push through on what they promised to do."Main event: US CPI
Same as on Monday, there are no important releases on the Japanese economy. However, the most significant data release for Tuesday is the US CPI, which is expected to start rising again. Despite good CPI expectations, the Flash Manufacturing PMI and New Home Sales are likely to show worse-than-before figures. As a result, the overall effect on the Greenback might be negative.
Meanwhile, Simon Smith does not think that the BoJ is likely to implement more stimulus before year's end. He said that the "effectiveness of it is going to be weak, the problems it is going to cause can often outweigh what it resolves". Hence, Simon suggests the onus is again going to fall on the government pushing some of the structural forms, that they have been promising and fallen short on.
USD/JPY keeps surprising
The US Dollar keeps surprising with its performance. The US currency slid for another day, amid US Existing Home Sales growing at a slower-than-expected rate. However, the losses were not severe, as USD/JPY declined only 9 pips. For Tuesday the technical studies remain mixed, so unless the US CPI disappoints, the Greenback should edge up. Closest resistance retains its position around 120.30.
Daily chart
Monday's USD/JPY performance was ultimately to the downside. The pair failed to form a double bottom, meaning that a hike is now uncertain. At the moment the pair is steadily trading below the 120 level, and unless the US CPI data improves today, the Yen will probably keep gaining ground.
Hourly chart
SWFX traders stay long the Dollar
Trader's attitude towards the Buck slightly deteriorated, but still 59% of all participants are long the Dollar. At the same time, the share of buy orders increased by 23 percentage points, and now they account for 62% of the market.
Although slightly weaker, but OANDA traders' sentiment remains bullish at 61%. At the same time, the SAXO Group's market participants became more optimistic towards the Greenback, as 70% of all positions are now long (yesterday 67%).