- Pending orders in the 100-pip range are equally divided between the buy and the sell ones
- 70% of all open positions are long
- The weekly S1 at 106.18 represents immediate resistance
- Support is around 105.45
- 52% of the survey participants expect the US Dollar to cost more than 112.50 yen in three months
- Upcoming events: US CPI and Core CPI, Philly Fed Manufacturing, US Jobless Claims, US Current Account, NAH Housing Market Index
The US Dollar weakened against most major currencies on Wednesday, due to the Fed delaying interest rate hikes. The Loonie, however, was on the back foot, allowing the Buck to gain 0.31% against it. Concerning other currencies, the Greenback dropped 0.66% against the Aussie, 0.62% versus the Sterling, 0.57% against the Kiwi and 0.47% versus the Euro. Less declines were seen against the Swiss Franc (0.20%) and against the Japanese Yen (0.09%).
US Federal Reserve was forced to keep the target range for the Federal Funds rate flat at 0.25-0.50% after its June 14-15 meeting, owing to continuous risks to economic outlook and stagnating inflation expectations. Domestic data has been uneven recently, with mild payrolls report considered to be the key trigger for accepting the status-quo. All member of the Federal Open Market Committee (FOMC) voted for the decision, with Kansas City Fed President Esther George abandoning her hawkish call to raise the benchmark by 25 basis points. Janet Yellen, the Chair, agreed that there are some downside forces to interest rates that may be long-lasting. On the short-term basis, she admitted that the upcoming UK referendum on EU membership has weighed on the Fed's decision to postpone the upward revision to the Fed Funds target range.
The famous dot plot, which reveals individual members' perceptions of how interest rates are going to evolve in the future, showed that participants continue eyeing two interest rate hikes in 2016 and three in 2017. The terminal rate for the long run has shifted down to 3% from 3.3% in the March projection. The Fed estimates a 2% GDP growth every year during 2016-2018, also reflecting a moderate downward change in the outlook. Consumer prices, measured by the PCE Index, however, are forecasted to increase 1.4% this year. This indicates to an improvement from 1.2% seen three months ago.
Vatsal Srivastava, director at the Blackwater Consulting, explained why the US Dollar advanced against the Yen last week. He said there was nothing fundamentally driving USD/JPY on Monday, but one of the key drivers was the falling oil prices, which was actually boosting the Yen; in analyst's opinion, as there was an addition cause for more QQE. Vatsal Srivastava also mentioned that "it is going to be a hard economic ride ahead and there seems to be no light on the horizon for Japan as of now." "Lets hope for the best," he summed up.
US CPI and Core CPI, Philly Fed Manufacturing Index
Among important data today to influence the USD/JPY pair is the US CPI is due. The US CPI is released by the US Bureau of Labor Statistics. It is a measure of price movements by the comparison between the retail sales of a representative shopping basket of goods and services. The purchase power of USD is dragged down by inflation. The CPI is a key indicator to measure inflation and changes in purchasing trends. The Core CPI excludes Food & Energy sectors. Second, the Philadelphia Fed Survey, which is a spread index of manufacturing conditions (movements of manufacturing) within the Federal Reserve Bank of Philadelphia. This survey, served as an indicator of manufacturing sector trends, is interrelated with the ISM Manufacturing Index and the Index of Industrial Production. It is also used as a forecast of The ISM Index.Yen soars against the Buck after BoJ
With the Fed leaving its interest rate unchanged and stating that two hikes are scheduled for this year, the USD/JPY currency pair remained relatively unchanged on Wednesday. The BoJ also left its monetary policy unchanged earlier today, which caused Yen to strengthen dramatically. The sharp reaction caused volatility to stretch beyond the second support cluster, with the 104.00 psychological level somewhat managing to limit the decline. Price could still at least partially recover from this intraday low if the US fundamentals beat expectations, but we expect trade to close below the 105.00 mark.Daily chart
The current falling wedge pattern was breached to the downside today, rather than the expected breakout to the upside. Such development is rare for the falling wedges, thus, the US Dollar is under the risk of sustaining sharper losses against the Japanese Yen, with the main target switching to 100.72, the 50.0% Fibo.
Hourly chart
Today 70% of all open positions are long, compared to 72% on Wednesday. Meanwhile, all pending orders in the 100-pip range are equally divided between the buy and the sell ones.
There is a small but nevertheless bullish bias among OANDA and Saxo Bank traders as well. In case of OANDA, 69% of positions opened by its clients are long. Similarly, 57% of positions opened by Saxo Bank traders are long as well, compared to 62% on Wednesday.
Spreads (avg, pip) / Trading volume / Volatility
Slightly more than a half expect the exchange rate to rise above 114 yen
Exactly half of the surveyed (52%) now assume that the US Dollar is to cost more than 112.50 yen after three month time. The most popular choices imply that the Greenback is to cost somewhere either between 114.00 and 115.50 yen or even higher than 117.00 yen in three months, both selected by 16% of the voters. According to the votes collected between May 16 and June 16, the mean forecast for Sep 16 is 111.69. At the same time, 11% of the surveyed believe the Greenback could cost between 112.50 and 114.00 yen in three months.
More than 61% of respondents are having bearish view on the pair, the consensus forecast stands for 105.9, meaning traders do not believe bulls will be able to close above the 200-period SMA and will finish this week right at the weekly pivot.
According to nuonrg, a trader with the Dukascopy Community, the US Dollar is to outperform the Japanese Yen, being that "on a monthly chart the USD is at support above the 104. Intraday levels have closed last week on a higher low on daily with RSI sloping up."
At the same time, PisakJanos is bearish on the matter. "Things became normal on Tuesday at 9:00 UTC (balance regained after a huge fall) and continued to decrease in the normal pace until Wednesday 8:20 UTC, (London not opened yet). Expecting to break through support at 106.256 on Monday, when FED chair Yellen speaks," he commented.