USD/JPY to negate some losses

• 54% of commands are to purchase the US Dollar and the remaining 56% are to sell the currency
• Market sentiment among SWFX traders remains bullish, today 70% of all positions are long
• 16% of traders expect the US Dollar to cost between 121.5 and 123 yen in three months
• Nearest resistance rests around 120.11, represented by the monthly PP, while closest support lies around 119.90, the weekly PP and 55-day SMA
• Upcoming events: US Retail Sales and Core Retail Sales, US PPI and Core PPI, US Business Inventories

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The US top-notch credit rating was approved by Fitch Ratings Inc., which referred to the resilience of the world's number one economy, capital markets and status as the issuer of the world's reserve currency. Fitch said that the outlook for the AAA rating is stable, on the back of faster economic growth compared to most developed countries, while the US diversity, technological progress and favourable climate for business are the major advantages of the nation. The US budget deficit, which has shrank from the highest level on record of $1.4 trillion in 2009 to $483.3 billion in 2014, is estimated to continue contracting in 2015 and 2016, though reforms to compulsory spending and taxation measures will be required to prevent increases after 2018. The country has been operating under a debt limit imposed on March 16, which prohibits the government to add to its total borrowing. While Fitch predicts Congress to raise the level, that decision may come "close to" the period in October, when the Obama administration will deplete its disposable "extraordinary measures" to raise money to meet obligations without adding to the debt.

Moody's ranks the US at its highest credit rating, while S&P's rating is at AA+, its second-highest. S&P cut the US rating in 2011 for the first time amid fierce political disputes about spending measures and the debt ceiling.

An analyst from CMC Markets, Collin Cieszynski, said that "the US Dollar has had a massive rally over the last six months or so on expectations that the Fed would start raising interest rates, with most of the Street expecting that they would start at their June meeting." However, Collin indicates that the situation has changed recently, commenting that "there have been signs," such as: "at the last Fed meeting a number of Fed members lowered their forecast for GDP, inflation, and Fed fund, suggesting they were starting to back away a bit from their interest rate normalisation programme." The analyst concludes that "this shortfall in employment is another nail in that coffin, because the Fed has a mandate of keeping inflation under control and also boosting employment, so it is hard to see how they are going to start raising interest rates if employment is actually falling in the US."

Andrew Grantham, senior economist in CIBC World Markets, says that an increase in prices in the United States is unlikely to accelerate, at least on the core level and probably even on the headline level, "given that we have seen some further decline in oil prices since the end of February." According to him, it is improbable that year-view rates of inflation are going to get any stronger in the near-term (next 2-3 months). Still, "in terms of Fed policy, as long as they [headline and core inflation] do not decelerate significantly, they [the Fed officials] could still be looking to hike in June."

US Retail Sales and PPI

Craig Erlam, Senior Market Analyst at OANDA, gives his prospects about the Fed raising interest rates this year. He said that there is no big difference between the Fed raising rates either in June or in September. In his opinion September seems more likely, because it gives the Fed more time to prepare for the hike. Craig also shares his opinion on why the rates are to rise in the near future: "the impression I get from the Fed is that we don't really need to see the interest rate hike in September, I think 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."

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," he said.

USD/JPY to negate some losses

The currency pair demonstrated increasing levels of volatility yesterday, with the difference between the open and close exceeding 100 pips. The US Dollar rose during the first half of the day, but in the end it closed lower, just above 120 yen. As for Tuesday, the Buck is expected to rebound, while the nearest significant resistance lies at 120.64, namely the upper Bollinger band. Meanwhile, the technical indicators are still giving mixed signals.

© Dukascopy Bank SA

© Dukascopy Bank SA

Bullish sentiment deteriorates

Although not as strong as yesterday, but the market sentiment among SWFX traders remains bullish. Today 70% of all positions are long. At the same time, the gap between the buy and sell orders narrowed, as 54% of commands are to purchase the US Dollar and the remaining 46% are to sell the currency.

Bullish sentiment of OANDA's traders weakened, as long positions lost one percentage point, and at the moment they account for 60% of the market. The SAXO Group clients' sentiment improved, and the percentage of longs is now the same as the share of bulls at OANDA.

Spreads (avg, pip) / Trading volume / Volatility

16% of traders expect the US Dollar to cost between 121.5 and 123 yen in three months

© Dukascopy Bank SA

© Dukascopy Bank SA