- The portion of buy orders edged up from 62 to 67%
- 74% of participants are long the Dollar (previously 70%)
- 20% of traders expect the US Dollar to cost between 121.5 and 123 yen in three months
- Nearest resistance rests around 120.81, represented by the Bollinger band, while closest support lies around 120.11, represented by the monthly PP
- Upcoming events: US FOMC Member Lacker Speech, US Import Prices, US NIESR GDP Estimate, Japanese Core Machinery Orders and Monetary Policy Meeting Minutes
Following last week's disappointing non-farm payrolls data, the latest report on weekly jobless claims confirmed signs of deterioration in the US labour market. The number of Americans who applied for unemployment benefits in the week ended April 4 rose to 281,000, according to the Labor Department, against economists' expectations for a rise to 285,000. However, claims for the preceding week were revised to show 1,000 fewer application than initially thought. The four-week moving average of claims, considered a better gauge of labour market trends as it strips out week-to-week volatility, dropped 3,000 to 282,250 last week, reaching the lowest level since June 2000. Claims below 300,000 are associated with an improving labour market.
Job growth slowed considerably in March, with the highly awaited non-farm payroll report showing an increase by only 126,000, ending a 12-month streak of employment gains above 200,000. However, with the weakness mostly concentrated in the weather-sensitive leisure and construction sectors, economists expect the slowdown to be short-lived. The unemployment rate in the world's number one economy remained at 5.5% last month, in line with projections, which is the lowest reading since mid-2008.
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."
US Import Prices and Japanese Meeting Minutes
The price level of imports in the United States is estimated to have dropped 0.2% during March. Thus the Yen is in a good position to advance versus the Greenback, and there are no data releases concerning the Japanese economy scheduled for Friday that could disappoint. However, at the very beginning of the next week the release of the Japanese Monetary Policy Meeting Minutes will be the main risk event for the given currency pair.
Craig Erlam, Senior Market Analyst at OANDA, commenting on the prospects of the Fed raising interest rates this year, said that there is no real difference between the Fed raising rates either in June or in September. In his opinion September just seems more likely, because it gives the Fed more time to prepare for the hike. Craig also does not see the immediate necessity for a rate hike in September, but thinks that "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."
USD/JPY bounces back
The Greenback keeps surprising with its performance, as USD/JPY unexpectedly edged up yesterday. The Buck tested 120.81, the upper Bollinger band, before ending the trading session at 120.55. Nonetheless, a decline is still viewed likely on Friday, and the bearish technical indicators are bolstering this outcome. Immediate support rests at 120.11, but the US Dollar may not fall this far. In the meantime, the long-term bias for the pair remains positive.
Daily chart
USD/JPY confirmed the support trend-line of the emerging channel yesterday, and with some fluctuations the US Dollar has been generally moving up during the week. However, these gains are considered to be fragile, and soon the tide is expected to turn.
Hourly chart
Stronger market sentiment
SWFX traders' outlook towards the Greenback remains positive, as 74% of participants are long the Dollar (previously 70%). At the same time, the portion of buy orders edged up from 62 to 67%.
The share of bullish OANDA traders added one percentage point more, and now 59% of positions are long. The SAXO Group clients, on the other hand, have a weaker outlook towards the Buck today, as 55% of the traders are long the Dollar.
Spreads (avg, pip) / Trading volume / Volatility
20% of traders expect the US Dollar to cost between 121.5 and 123 yen in three months
The mean forecast for July 10 is 121.16. However, the majority of survey participants (54%) still expect the Greenback to cost more than 121.50 yen after a three-month period. The most popular choice is 121.50-123.00, chosen by 20% of the surveyed. The second place is taken by the 123.00-124.50 interval, voted for by 17% of traders.
This week the pair's sentiment changed considerably, as now 80% of all votes are bearish. The average expectation for April 10 stays just above the 118.60 level.
Pipx, one of the community participants, has a bullish outlook towards the US Dollar this week. He commented that "a trend line on the recent lows shows a strong bullish trend." However, TradeWizard, another survey participant, worked his magic and shared his bearish view on the USD/JPY pair. In his opinion "the pair was unable to break the barrier of 120.50, and it is slowly falling down." As a result, his short-term prediction is bearish.