- Share of buy orders declined from 64 to 46%
- 72% of open positions are long and only 28% are short
- Current target for longs is the April 24 high at 111.90
- Key support stands strong at 109.90/80
- 52% of the survey participants expect the US Dollar to cost less than 114 yen in three months
- Upcoming events: US ISM Manufacturing PMI (May)
US Dollar's performance yesterday was mixed, even though the main releases missed the expectations by a wide margin. The Greenback lost 1.02% against the Aussie and 0.69% versus the Kiwi, but was still able to rally 1.08% relative to the Sterling.
In line with a drop noted in the preceding month, a report on consumer confidence released on Tuesday showed that the negative tendency is developing. According to the Conference Board, the confidence unexpectedly diminished further in May, slipping to its lowest level in six months, reaching 92.6 mark from a revised 94.7 in April. Such a release is well below the postrecession high of 103.8 set in the beginning of the previous year. Meanwhile, majority of economists had expected the index to advance. Following data signalise that Americans continue to be cautious about the economy despite the seven years' recovery phase. However, their spending habits show that they are more upbeat than the confidence report suggests. In April, for example, consumer spending rose at the fastest rate since 2009. Also, consumers were relatively less optimistic about the short-term outlook, with the expectations index dipping to 79.0 in May from 79.7 in April. The proportion of consumers expecting business conditions to improve over the next six months increased from 13.8% to 15.1%.
Overall a strong dollar and poor global demand has hurt exports while upcoming Novembers' presidential election also is contributing to domestic economic uncertainty. Therefore, consumers remain cautious about the outlook for business and labour market conditions.
Vatsal Srivastava, director at the Blackwater Consulting, explained why the US Dollar advanced against the Yen last week. Even though he said that there was nothing fundamentally driving USD/JPY on Monday, 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.
Growth in US manufacturing poised to slow down
The main release for today is the manufacturing purchasing managers' index reported by the Institute for Supply Management. Accordingly to the consensus, the index should decline from the latest reading of 50.8 to 50.5, confirming current weakness of the industry after rising optimism in mid-2015.USD/JPY fails to reach 112 yen
USD/JPY turned around before reaching the upper bound of the channel, and the currency pair is now testing the up-trend and 55-day SMA at 110 yen. The base scenario is that this support holds and triggers a rally towards 112 yen, where the rate should meet the April high, weekly R3 and 100-day SMA. If this is not the case and the price falls lower, the sell-off will likely extend down to 107, where support is implied by the monthly S1 and 38.2% Fibonacci retracement of the 2011-2015 up-move.Daily chart
Even though the 200-hour SMA has been broken yet again, the key support stands strong at 109.90/80. This area should prove to be able to trigger a rally towards the Apri 24 high at 111.90 during the next few days.
Hourly chart
Dukascopy traders believe in stronger Dollar
The number of bulls by far exceeds the number of bears: 72% of open positions are long and only 28% are short. At the same time, the share of orders set 100 pips around the spot to purchase the Greenback declined from 64 to 46%.
Sentiment at OANDA is also bullish, but the share of longs has declined from 61 to 59% since the previous update. Interestingly enough, the tendency at Saxo Bank is the opposite - the share of longs has increased from 51 to 54% since the yesterday's measurement.
Spreads (avg, pip) / Trading volume / Volatility
Slightly more than a half expect the exchange rate to fall under 114 yen
Slightly more than a half of the surveyed (52%) now assumes that the US Dollar is to cost less 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 (27%) of the voters. According to the votes collected between April 27 and May 27, the mean forecast for August 27 is 110.95. At the same time, 16% of the surveyed believe the Greenback could cost between 115.50 and 117.00 yen in three months.
Dukascopy Community members are optimistic with respect to USD/JPY - 64% of them are bullish on the currency pair, and the average forecast for the end of the week is 111.60 dollars.
One of the bulls, megajorko, does not see dominance of either buy or sell signals, but suspects that "the pair will try to show similar path as the EUR/USD, being attracted by the magic 111.111 number".
In the meantime, Jignesh expects the Yen to strengthen, saying that "central bank are not happy with the BOJ intervening in the markets", which means a probable decline in USD/JPY.