- The portion of the commands to purchase the US Dollar stays the same at 60%
- The share of longs fell three percentage points, but is well above the 10-day average (72% against 66.5%)
- 70% say US Dollar is going to cost more than 120 yen in three months
- The down-trend resistance is at 120.30, and significant demand is seen at 119.50
- Upcoming events: US Trade Balance, Unemployment Claims, Fed Chair Yellen Speech, Factory Orders
The ADP report on the US labour market surprised to the downside, as fewer jobs were added in March than predicted. ADP non-farm employment change increased by 189,000 in March, considerably below expectations of a 225,000 rise. However, last month's data was revised upward to 214,000 from 212,000. The ADP employment change is considered as one of the leading indicators of labour market strength in the world's biggest economy. Even though the data appeared to be worse than expected, the jobless rate is set to remain unchanged at 5.5%, the lowest level since 2008. Last month the US unemployment rate fell to the level that some Fed officials consider consistent with full employment.
Another piece of soft data came from the US manufacturing sector, where activity expanded at a slower pace in March, the Institute for Supply Management reported. The ISM manufacturing index dropped to 51.5 last month, compared with 52.9 in February, while expectations were for the report to show the gauge to fall to 52.5. This was the fifth consecutive decline in the index, yet the reading remained above the 50-mark threshold, indicating the manufacturing sector continued to expand instead of shrinking. The employment sub-index dropped 1.4 points to 50, while the ISM's new-orders gauge slipped to 51.8 from 52.5.
Jasper Lawler, CMC Market Analyst, expects Japan's economy to start losing momentum. Jasper commented that despite the level of stimulus the Japanese economy had, a decline is right around the corner. He said that "even though we have seen some pick up in the quarters passed, now there is some indication that actually the growth in manufacturing is not as strong as it should be, but is actually looking as if it is moving towards a decline."
David Starkey, Senior Market Analyst from Cambridge Mercantile Group, commenting on the Fed removing 'patience' from Fed's interest rate guidance, said that "Yellen lowered expectation for GDP, inflation, and as such – the trajectory of Fed rates." He noted that "in December the last economic projections were that the Fed rates would be over 1% at the end of 2015." However, the most recent data showed the Fed now only expects rates to go as high as 0.625% by the end of 2015.
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."
Will there be any positive surprises today?
The second part of the day will be marked with the US releases on the trade balance and the unemployment claims, but also with the change in the factory orders and the Yellen's speech.
This week's main event is the US Non-Farm Payrolls to be published on Friday. According to the forecasts, there should be 251K more employed in March than in February, which is a substantial drop compared to the previous change of 295K.
USD/JPY retreats from monthly pivot
USD/JPY continues to negate its Monday's gains, and is likely to put pressure on support at 119 once again. Most of the daily technical indicators are pointing south, and resistance at 120 proved to be a tough one. Nevertheless, a base case scenario is that the price will remain above the 100-day SMA, and one of the next attacks launched at the monthly PP will succeed, paving the way towards the key level at 122.
Daily chart
The bulls got scared by the resistance trend-line yesterday, and USD/JPY declined. But for the time being there is a formidable support level at 119.50, which could be used as a springboard for yet another rally to 120.30, but a deeper decline is still more likely.
Hourly chart
SWFX and OANDA traders are mainly long; SAXO clients are net short
The share of longs fell three percentage points, but is still well above the 10-day average (72% against 66.5%). However, the portion of the commands to purchase the US Dollar stayed exactly the same, namely at 60%.
The tendency of the SAXO Bank bulls to leave the market persists. The share of long fell even further, down to 42 from yesterday's 46%. In the meantime, the bullish sentiment of OANDA traders strengthened. The percentage of long positions increased from 61 to 63%.
Spreads (avg, pip) / Trading volume / Volatility
70% say US Dollar is going to cost more than 120 yen in three months
Concerning the week-end outlook, there are more bulls among the FX Community members than there are bears, but the advantage is slim: 53.8% are long and 46.2% are short. Nearly 24% of the surveyed expect USD/JPY to finish this week somewhere between the levels of 119.7 and 118.8, while the price intervals 120.5-119.7 and 118.8-117.9 were both picked by 19% of the respondents.
Panzer, commenting on the prospects for the pair, said "there is a real possibility to test strong resistance at 122.10 level," whereas for geula4x USD/JPY "seems bearish on the daily chart." He noted that resistance lies around 121.62, represented by the previous daily highs, and support lies at 118.25, which has held the price since February 9.
As for the longer-term perspectives, the consensus forecast for the first of July is 122.16. The conviction of traders in bullishness of the US Dollar is also shown by the fact that 70% of forecasts are placed above 120 yen, and the most popular price range was 124.50-123.00, chosen by 17% of the survey participants.