- 41% of commands are to acquire the Greenback and the remaining 59% are to sell
- Long positions returned to their Monday's level of 74%
- 16% of traders expect the US Dollar to cost between 121.5 and 123 yen in three months
- Nearest resistance rests around 119.68, represented by the 20-day SMA, while closest support lies around 119.33, the 100-day SMA
- Upcoming events: US Empire State Manufacturing Index, US Capacity utilization Rate, US Industrial Production, US NAHB Housing Market Index, US Crude Oil Inventories
US retail sales rebounded in March as consumers stepped up purchases of cars and other goods, adding to signs that a precipitous slowdown in growth in the beginning of the year was temporary. Sales of US retailers rose 0.9% to a seasonally adjusted $441.4 billion in the reported month, the Commerce Department said. That was the biggest monthly increase in a year, but against economists' expectations for a 1% gain. Higher sales were largely driven by car purchases, which increased 2.7% last month. Excluding autos, core retail sales rose 0.4% in March, after remaining steady in February and dropping 1.2% in January. Compared to a year earlier, overall retail sales increased 1.3% in March. Consumer spending accounts for more than two-thirds of US GDP. Last month, Americans spent more on building supplies, garden equipment, furniture, and clothing and accessories.
In a separate report, the Labor Department said US producer price index for final demand ticked up 0.2% last month, with increasing prices for goods making up more than half of the gain. The PPI had decreased 0.5% in February. Measured on an annualized basis, producer prices slid 0.8%, the biggest year-over-year drop since records began in 2009, after falling 0.6% in February. Core PPI rose 0.2% after being unchanged in February and was up 0.8% in the 12 months through March.
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."
Several US economic figures expected to worsen
A number of US economic news releases are due today. All the events should have a medium impact, and the data expectations are quite mixed, but mostly negative. As a result, the Greenback might experience some selling pressure and give room for other currencies, in this case the UK Pound, to rise. Moreover, there will be no relevant data releases concerning Japanese economy this week at all.
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 falls deeper
On Tuesday, the USD/JPY pair failed to rebound and dropped amid the worse-than-expected fundamentals. The Greenback reached out to the weekly S1 at 119.10, but eventually closed at 119.44. The Buck is likely to extend its slide, while the technical indicators are still giving mixed signals. The target is 119 yen, although the US Dollar might also reach the lower Bollinger band around 118.77.
Daily chart
As the US Dollar declined against the Yen for the second day yesterday, a correction appears to have started recently. Judging by the hourly chart, the Greenback rebounded on Tuesday evening, but failed to go over 119.70. Since a further sell-off is expected, these recent gains are likely just a setback, and there is a chance of a fall towards 119.
Hourly chart
Bullish sentiment continues to strengthen
Market sentiment improved further, and the long positions returned to their Monday's level of 74%. The number of buy orders, on the other hand, retreated, as 41% of commands are to acquire the Greenback and the remaining 59% are to sell.
OANDA's traders grew more confident in the Greenback, as long positions added four percentage points, and now they account for 64% of the market. Meanwhile, SAXO Group's market sentiment improved even more, as 74% of traders are now long the Buck (previously 60%).
Spreads (avg, pip) / Trading volume / Volatility
16% of traders expect the US Dollar to cost between 121.5 and 123 yen in three months
The mean forecast for July 15 is 121.58. However, the largest half of the traders (56%) expect the US Dollar to cost more than 121.5 yen in three months, while the most popular choice was 121.5-123 interval, selected by 16% of survey participants. The second most popular decision was 123-124.5, chosen by 14% of traders.
Compared to the previous week, the sentiment is now positive. According to the latest survey, 61.5% of FX Community traders foresee appreciation of the US Dollar versus the Yen by the end of the week. The average forecast for the pair is 120.50 yen.
Al_dcde, one of the survey participants, has a positive outlook towards the USD/JPY currency pair. He mentioned that the given pair is supported by a strong Dollar, advance in Japanese stocks and prospects that the BoJ will expand its easing programme later this year. His bearish rival, VALTRAD, assumes that the Greenback will decline against the Yen. "Yen continues to strengthen. Even a powerful strengthening of the Dollar this week has not affected the growth of the pair USD/JPY." VALTRAD also suggests to start folding carry-trade on the Japanese Yen.