- The number of buy commands declined from 65 to 59%
- Only 66% of traders are now long the Buck (previously 72%)
- 17% of traders expect the US Dollar to cost between 123.00 and 124.50 yen in three months
- Nearest resistance rests around 120.42, represented by the Bollinger band, while closest support lies at 119.91, the 55-day SMA
- Upcoming events: US Factory Orders, US FOMC Member Evans Speech
Manufacturing activity in the US continued to grow at a tepid pace in April as a recovery in new orders was offset by employment falling to its lowest level in more than five years. According to the Institute for Supply Management, the index of factory activity came in at 51.5 in April, remaining unchanged from the previous month, which had marked the lowest level since May 2013. Economists, however, had expected a 52.0 reading. The employment index slid into red territory for the first time since May 2013, declining to 48.3, the lowest level since September 2009. In March, the employment sub-index was 50.0. The weak factory payrolls data may temper expectations for Friday's April payrolls report from the Labor Department. Economists estimated total nonfarm payrolls rose 220,000 in April, after an unexpectedly weak increase of just 126,000 new jobs in March. Manufacturing payrolls lost 1,000 jobs in March.
A separate report showed, consumer confidence rose in April to the second-highest reading in more than eight years as Americans became more optimistic about their financial prospects. The University of Michigan said that its final index for the month jumped to 95.9 from 93 in March. Americans' inflationary expectations declined to 2.6% in the next year, down from 3% in the previous month. Over the next five to 10 years, they also expect a 2.6% rate of inflation, compared with 2.8% in the previous month.
Stephen Pope, a managing partner, gives his opinion about the current situation concerning the Bank of Japan. He says that if you want to find any shock revelations about what the BoJ are up to, one actually has to start digging quite deeply into the data. Stephen comments that the data a lot of data mining is required, because at the current time it is uncertain whether the Abenomics, the Three Arrows, are really working. He also adds that "there has been a lot of pressure from the Government on the BoJ to be a heavy intervention machine, so almost sacrificing their independence in order of making Abenomics work and pushing Japan forward."
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 Factory Orders
For the first three days this week there will be a Bank Holiday in Japan, which leaves us with only US data to look at today. The number of Factory Orders in the US is expected to increase for the second month in a row, thus strengthening the US Dollar against the Sterling. Nonetheless, Charles Evans, president of the Fed of Chicago, is likely to provide some insight on when the Fed is planning to hike interest rates.
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 extends rally
Last Friday, the US Dollar overperformed, as it advanced against the Japanese Yen, easily breaching the nearest resistances. Furthermore, the Greenback even managed to overcome the 120 psychological level, afterwards settling at 120.18. Today the USD/JPY currency pair is expected to rise again, with immediate resistance located at 120.42, namely the Bollinger band; however, a stronger cluster rests around 120.75. Meanwhile, technical studies remain mixed in the shorter timeframe, while the longer ones retain bullish signs.
Daily chart
On the hourly chart we can see the US Dollar rising at the end of last week. As was anticipated, the 120 level was taken over once again, and a new three-week high was established at 120.28. Right now the USD/JPY pair is seen undertaking a correction, although the 120 psychological barrier is preventing the Greenback from edging lower. A full-on surge is expected to take place by the end of the day.
Hourly chart
Market sentiment remains bullish
Market sentiment worsened again, as only 66% of traders are now long the Buck (previously 72%). At the same time, the number of buy commands declined from 65 to 59%.
Market sentiment of OANDA's traders weakened again, as today 57% of all positions are long (previously 64%). Meanwhile, SAXO Group traders' outlook towards the Greenback returned to its last Thursday's level of 72%, compared to 71% on Friday.
Spreads (avg, pip) / Trading volume / Volatility
17% of traders expect the US Dollar to cost between 123.00 and 124.50 yen in three months
The mean forecast for August 4 is 120.96. The vast majority of the survey participants (63%) still expect the Greenback to cost more than 120 yen. The most popular choice was 123.00-124.50 price interval, selected by 17% of traders. The second popular price range, 121.50-123.00, was selected by 15% of the surveyed.