- Buy orders now take up 65% of the market
- Today 58% of all positions are long
- Closest resistance is the weekly R3 at 121.51
- From below the price is supported by the Bollinger band at 121.02
- Almost two thirds see USD/JPY above 120 yen in three months
- Upcoming events today: US Jobless Claims, US Philadelphia Fed Manufacturing Index, US Existing Home Sales, US FOMC Member Fischer Speech
However, central bankers expected a rebound in the coming months as the US Dollar weakened, supporting exports, according to the April policy meeting minutes. While the minutes showed a rate increase is not completely off the table, only a few Fed officials thought they would have enough confidence to begin raising interest rates at the June 16-17 meeting. Market participants are increasingly expecting the Fed to increase rates in September or beyond. Fed's minutes also showed that officials discussed whether the central bank should increase its 2% annual inflation target.
Sean Yokota, head of Asia Strategy at SEB, said that "if you look at Japan's public debt, which is about 243% of GDP, which is also one of the largest in the world." The economist comments that the BoJ needs to get the debt down before all the baby boomers retire, so they need to go through some fiscal consolidation, whether through tax hikes or through spending cuts. He also mentioned that such measures put Japan into recession, but he thinks that it also gave a bit of confidence to people; that this time when you increase the taxes, it does hit you short-term, but you can come out of the recession. Moreover, the Japanese economy is still doing relatively O.K. and the equity markets are still pretty high.
Craig Erlam, Senior Market Analyst at OANDA, commenting on the prospects of the Fed raising interest rates this year, said that there is no real difference between the Fed raising rates either in June or in September. In his opinion September just seems more likely, because it gives the Fed more time to prepare for the hike. Craig also does not see the immediate necessity for a rate hike in September, but thinks that "there is just a number of policymakers who want to test the water with the first hike, see how the markets react, how economy holds up."
US Unemployment Claims
The Japanese Manufacturing PMI, which already showed signs of improvement and pushed the US Dollar down. However, later today the Department of Labor is to release data on the Unemployment Claims, which is expected to worsen. According to the forecasts, the USD/JPY should edge lower; however, a number of important US data releases is also due by the end of the day, which are expected to show improvements in the US economy. Hence, the end-game for the USD/JPY is somewhat unknown.
Marcel Thieliant, economist from Capital Economics, forecasts USD/JPY to be at 130.00 by the end of the second quarter. The analyst commented that he expects the BoJ to step up the pace of easing at the end of this month. "This is obviously not what other economists expect, if that happens, we will probably see a strong drop in the Yen against the Dollar and against other major currencies," Thieliant said.
USD/JPY: March high so close, yet so far
For a third consecutive day the Greenback pressured the Japanese Yen yesterday. The two closest resistance were pierced, as well as the 121 psychological level. Moreover, the USD/JPY currency pair even reached the third resistance level (weekly R3) at 121.51, which is not far from the March ceiling. Today the weekly R3 acts as an immediate resistance, but is likely to be breached, unless the US fundamentals disappoint. Once the US Dollar takes the December high, we might see it test the March pinnacle at 122.03.
Daily chart
After overcoming the May high, the USD/JPY kept gaining ground up to 121.50 yesterday. Since then, the US Dollar began to undergo a correction, but the 121 area might limit it. However, volatility to the downside is expected today, but ultimately, the pair should rise again and attempt to reach December high.
Hourly chart
Bulls keep losing ground
Bulls keep losing ground, as today 58% of all positions are long (previously 60%). The number of orders to buy the Buck declined by ten percentage points, as they now take up 65% of the market.
The market participants at other brokers appear to be less bullish on USD/JPY. Right now 53% of OANDA clients are holding long positions. SAXO Bank traders, however, are more optimistic towards the Greenback, being that 63% of their positions are long.
Spreads (avg, pip) / Trading volume / Volatility
Almost two thirds see USD/JPY above 120 yen in three months
The surveyed traders are mostly bullish on the Dollar. According to the latest data, 62% of them expect the US currency to cost more than 120 yen after three months. Nevertheless, the largest concentration of answers lies between 123.00 and 124.50, namely 17% them. Meanwhile, the average of the three-month forecasts collected between Apr 21 and May 21 is 120.7.
The present trading week experienced significant changes in market preferences, as now long votes take almost 75% from all, underlying a slight improvement.
Piter44, a trader with a bullish outlook towards the USD/JPY, says that the pair is in a consolidation stage, therefore, he expects bullish movement. However, he also warns that the market may trap shorts below latest lows of 115. A community member with a bearish outlook, Jignesh, explains that the USD/JPY pair has been held up by a major support level at 118.91 and that this level will be retested this week. Jignesh also suggests to be wary of the equity indexes, such as the S&P 500, which has been struggling at highs.