- The portion of sell orders edged up from 51 to 61%
- Three quarters of all open positions are long
- The down-trend at 109.13 represents immediate resistance
- Support is around 108.55
- 53% of the survey participants expect the US Dollar to cost more than 114 yen in three months
- Upcoming events: US Crude Oil Inventories, FOMC Meeting Minutes, US Philly Fed Manufacturing Index, US Jobless Claims
The second day of the given week was also not positive for the American Dollar, as it suffered rather sharp losses against some major peers, while gains against the others were only mild. The Greenback slumped 0.50% versus the Aussie, which was boosted by the RBA's minutes statement, followed by a 0.43% decline against the British Pound and another 0.30% against the New Zealand counterpart. The only relevant gain of 0.30% was registered against the Swiss Franc, while other ones accounted for only 0.11%, 0.10% and 0.06%, detected against the Loonie, the Yen and the Euro, respectively.
The cost of living in the US recorded the biggest increase in more than three years in April, since gasoline and rents rose, pointing to a steady inflation build-up that could give the Federal Reserve ammunition to raise interest rates later this year. Consumer prices increased to 0.4%, which is the biggest gain since February 2013, following a 0.1% increase in March, the Labour Department report showed. That took the year-on-year increase in the CPI to 1.1% from 0.9% in March. Moreover, data showed that the so-called core CPI, which strips out food and energy costs, rose 0.2% after climbing 0.1% in March. In the 12 months through April, the core CPI increased 2.1% after increasing 2.2% in March.
The Federal Reserve has a 2% inflation target and tracks an inflation measure which is currently at 1.6%. The rise in prices in April is likely to be welcomed by the Fed officials who last month softened their language on inflation at the end of a regular meeting. However, financial markets do not expect the central bank to hike rates again before September, given sluggish growth at the beginning of the year. The US central bank lifted its benchmark overnight interest rate for the first time in nearly a decade and policymakers have forecast two more rate hikes this year.
Vatsal Srivastava, director at the Blackwater Consulting, explains why the US Dollar is a advancing against the Yen this week. Even though he says that there was nothing fundamentally driving USD/JPY on Monday, one of the key drivers is the falling oil prices, which is actually boosting the Yen, in his opinion, as there is an addition cause for more QQE. Vatsal Srivastava also mentions 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 added.
FOMC Meeting Minutes
Among important events today is the FOMC Meeting Minutes. The FOMC organizes 8 meetings in a year and reviews economic and financial conditions, determines the appropriate stance of monetary policy and assesses the risks to its long-run goals of price stability and sustainable economic growth. FOMC Minutes are released by the Board of Governors of the Federal Reserve and are a clear guide to the future US interest rate policy. It is the only event that is to have significant impact on the US Dollar pairs today.USD/JPY on the edge of breaking the pattern
Despite substantial upside volatility, the US Dollar was unable to stabilise above the resistance line of the falling wedge pattern. The FOMC Meeting Minutes is the main USD/JPY driver today, which could cause a breakout to the upside. In this case, the next level to limit the gains will be the weekly R1 at 109.75, while the 110.00 mark also has a chance of being retaken. On the other hand, a dovish statement could prolong the pattern's lifespan and trigger a sell-off at least towards the monthly PP at 108.39, which not only kept the Buck elevated since last week, but is also reinforced by the weekly PP and the 20-day SMA. Meanwhile, technical indicators are unable to confirm either scenario.Daily chart
The US Dollar's attempts to breach the down-trend are intensifying, along with the 200-hour SMA edging closer and acting as a potential support. These volatility breaches do not mean that the USD/JPY is to successfully continue appreciating, as the FOMC Minutes could cause a sharp decline below the 108.60 mark.
Hourly chart
Bulls remain in control
Bulls also dominate the OANDA market, where 59% of open positions are long, tgree percentage point less from Tuesday. Meanwhile, the sentiment as reported by SAXO Bank remains bullish at 53%, compared to 56% yesterday.
Spreads (avg, pip) / Trading volume / Volatility
More than a half expect the exchange rate to rise above 114 yen
More than half of the surveyed (53%) now assumes that the US Dollar is to cost more than 114.00 yen after three month time. The most popular choice implies that the Greenback is to cost somewhere between 114.00 and 115.50 yen in three months, selected by more than a quarter (28%) of the voters. According to the votes collected between April 18 and May 18, the mean forecast for August 18 is 111.44. At the same time, 22% of the surveyed believe the Greenback could cost between 115.50 and 117.00 yen in three months.
Nevertheless, Dukascopy Community members are still bullish on the pair, with 66% of respondents having positive view.
This week megajorko, a trader with the Dukascopy Community, remains bullish on the USD/JPY pair. "It was so close to 110 but presently the level is formed as a strong resistance I suppose. I am not sure but I think that during FOMC it will be broken but it will be short lived and there are some signs of a start of a trend down after all," he said, also adding that "the revision of Japanese stimulus program is giving some boost to yen and the only thing that stopped a powerful spike down in the pair is the present USD power."
At the same time, Likerty suggests that the Buck is to weaken against the Japanese Yen by the end of the week. "Interestingly enough, US Dollar might move in opposite directions in regards of its stance against European majors and Yen. The USD/JPY has unfinished business around 107.60's and later - 104.80's," Likerty commented. In his view while the US Dollar is set to go stronger against other major peers and precious metals, it could go weaker against the Yen. "It is a sign of upcoming positioning for June's Brexit risk event," he added.