- The share of buy commands now takes up 64% of the market
- Market sentiment remains bullish, with 72% of all positions being long
- 16% of traders expect the US Dollar to cost between either 121.5-123 or 123-124.5 yen in three months
- Nearest significant resistance rests at 119.41, represented by the weekly PP, while closest support lies at 118.52, the Bollinger band
- Upcoming events: Japanese Trade Balance, US Existing Home Sales, US Crude Oil Inventories
The timing of the first US interest rate hike in a decade continues to depend on economic performance, according to New York Federal Reserve President William Dudley. In comments, Dudley repeated cautious optimism that the world's biggest economy will continue to grow and that inflation will begin to firm later this year. While the US economy has further to reach the Fed's dual mandate of full employment and 2% inflation, the data will "hopefully" support a rate hike later this year, Dudley said. The Fed is expected to raise rates by June at the earliest but more likely in the second half of the year, according to forecasts by economists and Fed officials.
Meanwhile, US consumer sentiment rose more than expected in April to the second-highest level in more than eight years as Americans were more optimistic about the economic outlook and inflation. The University of Michigan said that its preliminary index of sentiment rose to 95.9 this month from 93 in March. The survey's sub-index on business conditions climbed to 108.2 from 105.0 in March, reaching the second-highest level since January 2007, while a reading on consumer expectations rose to 88.0, up from 85.3. Americans expected an inflation rate of 2.5% in the next year, the lowest level since September 2010, and down from 3% in the previous month.
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."
Fundamental background
On Tuesday there will not be any data releases concerning the Japanese and the US economies. Nonetheless, on Wednesday the Japanese Trade Balance is expected to improve, as well as the US Existing Home Sales. However, the Home Sales have shown worse-than-expected figures for the past four months, hence; if the pattern persists, the Greenback will likely weaken against the Yen.
Marcel Thieliant, economist from Capital Economics, forecasts USD/JPY to be at 130.00 by the end of the second quarter. The analyst commented that he expects the BoJ to step up the pace of easing at the end of this month. "This is obviously not what other economists expect, if that happens, we will probably see a strong drop in the Yen against the Dollar and against other major currencies," he said.
USD/JPY marches towards 119.6
The USD/JPY currency pair fell under substantial volatility yesterday. The Bollinger band was tested on the downside, as well as the weekly PP on the upside. Ultimately, the US Dollar overperformed, as it edged up higher than anticipated. The 119 mark was crossed, and the Buck stabilised at 119.21. The technical indicators keep showing mixed signs, so the extension of the ‘correction' rally is expected. The weekly PP is likely to be breached, and the Greenback should end the trading session around 119.6, namely the 20-day SMA.
Daily chart
As the US Dollar overperformed, the resistance trend-line was breached yesterday. The USD/JPY pair is seen regaining the bullish momentum. A new support trend-line is now preventing the Greenback from falling; however, the angle of the rally is rather sharp, suggesting that the line will be pierced soon. Nonetheless, the bullish bias is expected to persist, just on a more moderate scale.
Hourly chart
Sentiment remains bullish
Although not as strong as yesterday, but market sentiment remains bullish, with 72% of all positions being long. The share of buy commands now takes up 64% of the market.
Even more OANDA's traders are long the Greenback today, namely 68% of them (yesterday 67%). At the same time, the SAXO Group traders' attitude towards the US Dollar worsened, as 71% of all positions are long today.
Spreads (avg, pip) / Trading volume / Volatility
16% of traders expect the US Dollar to cost between either 121.5-123 or 123-124.5 yen in three months
The mean forecast for July 21 is 121.5. However, the largest half of the traders (56%) expect the US Dollar to cost more than 121.5 yen in three months, while the most popular choices are 121.5-123 and 123-124.5 intervals, selected by 16% of survey participants each. The second most popular decision is the 117-118.5 interval, chosen by 12% of traders.