- There are now (81%) relatively more commands to purchase the Dollar than yesterday (76%)
- Bulls remain in a majority with 58% of the market
- 17% of traders see USD/JPY above 124.5 by mid-May
- FXPro and Caxton FX: USD/JPY to aim for 135
- Upcoming events: US UoM Consumer Sentiment, Import Prices, Japan's GDP on Sunday
US retail sales declined more than expected in January, suggesting growth in the world's number one economy lost some traction at the beginning of the year. According to the Commerce Department, retail sales decreased 0.8% in January, while the core measure, which excludes automobiles, dropped 0.9% on month. Despite gasoline prices declining 39.5% since June, consumer spending has been weaker in the past two months. Economists say households are using the extra money to pay down debt and increase savings. Consumer spending, which accounts for more than two-thirds of US GDP, grew at its fastest pace since 2006 in the fourth quarter. It is expected to maintain a solid pace of growth this year.
Meanwhile, the number of Americans filing new claims for unemployment surged more than expected last week, but the underlying trend remained consistent with an improving labour market. Initial claims for unemployment benefits rose 25,000 to a seasonally adjusted 304,000 for the week ended February 7, the Labor Department reported. The preceding week's data was revised to show 1,000 more applications received than previously reported. The four-week moving average of claims, considered a better gauge of labour market trends as it strips out weekly volatility, fell 3,250 to 289,750 last week. A key measure of labour market slack, the number of job seekers for every open position, hit its lowest level since 2007 in December.
US consumer sentiment to remain stable
The analysts do not see any major changes in the consumer sentiment measured by the University of Michigan. The index is estimated to step from 98.1 to 98.2. Meanwhile, the decrease in the cost of imports is expected to accelerate from 2.5 to 3.1%.
USD/JPY fails to sustain recovery
Simon Smith, Chief Economist at FXPro, is expecting the Yen to weaken throughout 2015. He does not rule out a possibility of USD/JPY surging up to 135, reasoning that the Japanese government is going to push ahead with the policy measures to prop up economic growth.
Nicholas Ebisch from Caxton FX shares a similar view, anticipating moderate appreciation of the US Dollar against the Yen over the next 12 months. He forecasts the currency pair to go up to 125 by April. According to the analyst, by the end of 2015 the rate may well achieve the level of 135, on the condition the US macroeconomic indicators do not fall behind the expectations and the Japanese officials introduce more easing measures to prompt up inflation.
Yves Perreard, CEO of Perreard Partners Investment, appears to be less confident in bullishness of USD/JPY in the short term. He expects the Japanese Yen to strengthen in the coming months pulling the pair to 115 by the end of March because of "repatriation of the pension funds" and "lack of foreign investment". However, in the longer run Perreard is also bullish the US Dollar, reckoning the rate will then recover to 120 by the mid-year.
Daily chart
Although USD/JPY closed above the resistance at 120 on Wednesday, it took a major hit yesterday, retreating all the way back to 119. Nevertheless, the outlook with respect to the US Dollar is optimistic: the technical indicators are bullish and there is a dense demand area between 119 and 118. However, in case the selling pressure intensifies, additional cluster of supports is emerging around 115.50 (100-day SMA, monthly S1 and 38.2% Fibo).
Hourly chart
Bulls withstand the sell-off
A decline in Buck's value did not discourage the bulls, as they remain in a majority with 58% of the market. At the same time, there are now (81%) relatively more commands to purchase the Dollar than yesterday (76%).
The level of confidence in the bullishness of the Greenback among OANDA clients appears to be higher, being that 61% of open positions are long. SAXO Bank traders are considerably less optimistic regarding the ability of the Dollar to appreciate, but their sentiment noticeably improved: the share of longs went up from 42 to 48%.
Spreads (avg, pip) / Trading volume / Volatility
17% of traders see USD/JPY above 124.5 by mid-May
Compared to the previous week the bullish sentiment gained even more strength, as 66% of all FX Community votes are now bullish. However, the average forecast for the pair for the end of this week went down to 117.9. A third of all traders surveyed expects the price to close Friday above 116.4 and below 117.9.
Dasak2010 is waiting for an upward correction, noting that the pair is bearish on the four-hour chart, whereas Likerty is short the Buck, assuming USD/JPY will dip down in the direction of 114.50.