- The number of purchase orders increased, now 55% of them are to buy the Buck
- Bullish positions returned to their week-old level of 70% (down from 75%)
- The Greenback is viewed to cost 122.51 yen in three months
- The nearest resistance level rests around 119.60, namely at the 55-day SMA, while the closest support level lies at 119.31, the weekly PP
- Upcoming events: US JOLTS Job Openings, Japanese Current Account
The pace of business activity growth in the US services sector dropped in March to the lowest level in three months, whereas new export orders jumped to the highest in more than two years. According to the Institute for Supply Management, the non-manufacturing PMI declined to 56.5 in the reported period after the previous reading of 56.9 and compared with the market's expectations for 56.5. Nonetheless, the exports index climbed to 59.0 up from 53.0 in February to reach the highest reading since February 2013. The surge in the exports index came despite the greenback's advance versus a basket of major currencies of more than 20% since last May. The employment index also increased, rising to its highest level since last October, with the gauge coming in at 56.6 compared with 56.4 in February. Meanwhile, ISM's index of services sector business activity fell to 57.5 in March from 59.4 in February, marking the lowest reading in a year.
Meanwhile, the comprehensive gauge of the labour market health turned negative for the first time in almost three years. The Fed's labour market conditions index, a composite of 19 various indicators, declined to a negative 0.3 points in March, down from 2 points recorded in February. The reading hit the lowest level since June 2012. Three months earlier, the LMCI climbed to 7.1 points, a near-three-year high.
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."
Another 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 JOLTS Job Openings
On Tuesday, the only relevant and important event is the US JOLTS Job Openings. The number of jobs is expected to increase, thus strengthening the Dollar versus the Yen. Moreover, after midnight the Ministry of Finance is to release data on the Japanese Current Account, which is expected to worsen.
USD/JPY regains upward momentum unexpectedly
On Monday, the US Dollar misbehaved, as a correction took place instead of a slump. The Greenback rebounded significantly, breaching the 100-day SMA and meeting supply area at 119.53, namely the upward trend-line. Today, USD/JPY is likely to edge up again, unless the fundamental data turn out to be worse than expected, whereas the technical indicators retain their bearish signals. The nearest resistance level lies around 119.60, while the weekly PP should stop the pair from falling deeper.
Daily chart
Even though the Greenback managed to regain momentum after heavy losses on Friday and returned back over the 119.5 level, the overall bias still remains negative. USD/JPY is traded far under the down-trend, meaning that a further decline is on the way.
Hourly chart
Bullish sentiment slightly weaker
Bullish positions returned to their week-old level of 70% (down from 75%). The number of purchase orders, on the other hand, increased, as 55% of them are to buy the Buck.
Meanwhile, OANDA traders retain a bullish outlook towards the US Dollar, being that still 63% of positions remain long. SAXO Bank clients, on the other hand, changed their perspective towards the Greenback, as 72% of all positions are now long (compared to 45% previously).
Spreads (avg, pip) / Trading volume / Volatility
The Greenback is viewed to cost 122.53 yen in three months
Exactly half of surveyors (50%) expect the Buck to cost more than 123 yen in a three-month period. The most popular choice was the 124.5-126 interval, selected by 16% of participants. The second popular decision also includes two prices ranges, 121.5-123 and 123-124.5, both chosen by 15% of traders.