- Orders to buy the Buck are in a majority with 69% of the market
- The traders' sentiment remains bullish, as the long positions take up 59% of the market
- 23% of traders see USD/JPY above 124.5 by mid-May
- The nearest support is represented by the 55 and 20-day SMAs, while the closest resistance is now the weekly PP
- Upcoming events: US New Home Sales Change, Fed's Yellen Testimony, JPY Industrial Production, JPY Retail Sales, JPY Foreign Bond Investment, US Consumer Price Index
Janet Yellen, the Fed Chairwoman, told Congress that policy makers are satisfied with recent economic growth but believed there is room for improvement, thus still pondered when to begin lifting interest rates. Yet, Yellen stressed that a rate hike is not likely for at least next couple of FOMC meetings, but said that the policy setting committee is considering interest rate increases "on a meeting-by-meeting basis". Moreover, Yellen highlighted that the persistence of subdued inflation might still postpone the timing of the lift-off. The Fed's goal is an annual 2% inflation. Yet, for more than two years, inflation has been climbing well below that level. It has fallen further from the Fed's target in recent months amid the stronger Dollar and lower oil prices. Meanwhile, business activity in the US services sector grew in February at the fastest pace since October. According to Markit, the preliminary PMI for services sector climbed to 57.0 in the reported month, up from the final reading of 54.2 in January.
The index has been above the 50.0-mark threshold for sixteen straight months, but the latest reading signalled that the rate of services sector output growth was still much weaker than the highs seen in mid-2014. A separate report from the Conference Board showed consumer confidence index retreated in February from the highest level in more than seven years a month earlier. The index of consumer confidence came in at 96.4 in the measured month, following the upwardly revised 103.8 reading in January, the highest since August 2007.
Steve Lucas, technical analyst from 3C Analysis, said: "I am not sure where the Bank of Japan will be comfortable with USD/JPY. I think it is kind of neutral weakness or strength in the Yen for direct exporters and importers. When we spoke in July, USD/JPY was at 100, and it is now at 120, so we have had a 20% weakness in the Yen, so is another 20% possible or 15% possible? Would it happen in 12 months? Possibly, it could, why couldn't it?"Janet Yellen testifies before the House Financial Services Committee
Today the US New Home Sales figure is expected to be weaker than its previous value. Nonetheless, the main risk event remains the testimony of Janet Yellen before the House Financial Services Committee, as the market is anticipating a rate hike this year in light of improving labour market conditions.
USD/JPY regains momentum
Steve Lucas mentions "the fact that numbers coming out of the US continue to be good, compared to everyone else in the world, so all the facts being in place I don't see any reason why the Dollar can't continue to go stronger, and I understand why the market is stalled here, there are some very-very key levels, so I do have a bit of caution in my Dollar call and I do want to see that 121 area broken."
The US Dollar managed to rebound on Tuesday, although the market reaction was not as strong as anticipated. The USD/JPY cross bounced back through the weekly pivot point and settled at 118.71. However, the pair did pierce through the weekly R1 and met resistance several pips before the cluster of important levels around 120. Technical studies are suggesting the pair is likely to fall in the short-term, while the longer-term indicators are giving bullish signals, meaning the pair might extend yesterday's gains. Closest resistance for the rebound is located between the 55 and 20-day SMAs.
Daily chart
On the hourly chart the USD/JPY pair is seen to have crossed the 100 and 200-hour SMAs, as well as the weekly PP. After declining even further, the Greenback seems to have started to regain momentum; however, the previously crossed supports are now acting as resistances and are preventing the Dollar from rallying. Technical indicators suggest that the pair will manage to edge higher by the end of the day.
Hourly chart
Sentiment remains bullish
Although not as pronounced as yesterday, but the traders' sentiment remains bullish, as the long positions take up 59% of the market. Meanwhile, the number of buy orders in the 100-pip range from the spot price surged 10 percentage points to 69%.
OANDA traders are as optimistic with respect to the Greenback, since 64% of open positions are long. In the meantime, the attitude of the SAXO Bank traders turned slightly to the negative side, being that 52% of open positions are short and the remaining 48% are long.
Spreads (avg, pip) / Trading volume / Volatility
23% of traders see USD/JPY above 124.5 by mid-May
Compared to the previous week, sentiment became completely equal on USD/JPY cross with both long and short expectations divided 50/50 between traders. The average forecast for the pair is currently around the 119 level.
Rokasltu this time is on the bullish side, as he said: "USD/JPY pair has been recently attacking 120 mark, taking it and retreating later. I think that such a scenario might be repeated this week again, thus rate at the end of the week might be lower than 120." Meanwhile, llolor is expecting strong data out of Japan and no signs of further QE. Therefore, he suggests bearish developments.