- Buy orders take up 66% of the market
- 64% of all open positions are long
- Support rests at 99.78
- The weekly S1 at 100.55 represents immediate resistance
- 58% of the survey participants expect the US Dollar to cost less than 105.00 yen in three months
- Upcoming events: FOMC Member Bullard Speech, FOMC Meeting Minutes, Japanese Trade Balance
US core consumer prices grew less than expected last month, official data showed on Tuesday. According to the Department of Labor, the core Consumer Price Index (CPI) rose 0.1% on a monthly seasonally adjusted basis in July, compared to the 0.2% hike seen in the previous month. Economic desks expected the core CPI to remain unchanged from June. On an annual basis, core inflation increased 2.2% in the reported month, while market analysts predicted the indicator to come in at 2.3% in July, unchanged from last month. Including food and energy, consumer prices dropped to 0.0% month-over-month in the seventh month of the year, down from the 0.2% upturn registered in June, but in line with analysts' expectations. Year-over-year, inflation added 0.8% last month, compared to the 1.0% increase seen in the first month of summer. The US CPI data along with the latest retail sales figures added to concerns about the health of the US economy, raising doubts as to whether the Federal Reserve will increase interest rates this year, as it formally adopted a 2% inflation target back in January 2012.
Meanwhile, other data released on Tuesday showed that building permits fell 0.1% to 1.152 million units in July, after rising 1.5% to 1.153 million units in the preceding month, while markets pencilled in an increase of 0.5% to 1.159 million in the reported month.
FOMC Minutes - the main event
Today the FOMC Meeting Minutes are due today. FOMC stands for the Federal Open Market Committee, that 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. From the Japanese side the Trade Balance is due. It is a seasonal measure of balance amount between import and export. A positive value shows a trade surplus, while a negative value shows a trade deficit. Japan is so much dependent on exports, but this event is only likely to set the mood for early trade on Thursday.USD/JPY seen descending further
With the return of risk-off sentiment and relatively poor US inflation data yesterday, the USD/JPY currency pair was close to touching the 99.50 level, but closed at 100.30. Risks of the Buck slumping below the 100.00 psychological level are even greater, while technical indicators support this outlook with their bearish signs. The nearest level to support the pair is located at 99.78, namely the weekly S2. In case bears do take over the market, the decline is then likely to last until the 99.00 mark is reached, which is reinforced by the monthly S1, the weekly S3 and the Bollinger band.Daily chart
Even though a breach of the up-trend usually implies that further bearish momentum is to prevail, on some occasions the exchange rate not only returns to the breakout point, but even continues to edge higher. For the USD/JPY the direction of further movement is to be determined to day, but if the 200-hour SMA is pierced – the Buck is to embark on another bullish journey.
Hourly chart
Bullish traders' sentiment remains unchanged at 64%, but the number of orders to purchase the US Dollar lost 17 percentage points. The orders now take up 66% of the market.
Sentiment at Saxo Bank is virtually the same - 70% of the Denmark-based clients are currently holding long positions. Traders at OANDA are even more confident in Dollar's appreciation - as many as 72% of open positions are long. Using the data as a contrarian indicator, the sentiment implies a cheaper Dollar. There is little room for new buyers to enter the market, and if the bulls start closing positions on profit-taking, this could create a strong selling pressure.
Spreads (avg, pip) / Trading volume / Volatility
Slightly more than a half expect the exchange rate to fall below 105.00 yen
Slightly more than half of the surveyed (58%) now assume that the US Dollar is to cost less than 105.00 yen after a three month time. The most popular choice, however, implies that the Greenback is to cost more than 109.50 yen in three months, selected by 20% of the voters. According to the votes collected between July 17 and August 17, the mean forecast for November 17 is 103.80. At the same time, 18% of the surveyed believe the Greenback could cost somewhere between 99.00 and 100.50 yen in three months.