- The percentage of buy orders slightly dropped, as 59% of them are now to acquire the Buck
- Market sentiment stays distinctly bullish, with the portion of longs unchanged at 74%
- 17% of traders expect the US Dollar to cost between 121.5 and 123 yen in three months
- Nearest resistance rests around 120.71, represented by the Bollinger band, while closest support lies around 120.11, represented by the monthly PP
- Upcoming events: US Retail Sales and Core Retail Sales, US PPI and Core PPI, US Business Inventories
Janet Yellen, Fed Chairwoman, has found herself in a difficult situation, as a gap in views on a timing of the first interest rate hike in almost a decade continues to widen. The US central bank has been divided into two parts, with some policy makers insisting on a lift-off in the federal funds rate already in June, while others believe the Fed should keep rates near zero until the second half of the next year. This divergence in opinions makes it difficult for Yellen to navigate the monetary policy in the world's number one economy. One of the sticklers for a rate hike this summer is Federal Reserve Bank of Richmond President Jeffrey Lacker, who said last week that there is still a strong case for the US central bank to begin raising interest rates in June, as the recent soft economic data will probably prove temporary. At the same time, the President of the Minneapolis Fed Narayana Kocherlakota argued that the Fed should maintain rate on hold until the middle of next year to help the US economy fully recover from the Great Recession.
In March, the FOMC dropped a pledge to be "patient" as it considered the first rate hike since 2006, while Fed Chair Janet Yellen said borrowing costs would probably be increased gradually. Among market participants, expectations for the first increase have been pushed back. A majority of economists forecast the first rate rise at the Fed's September meeting.
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 Retail Sales and PPI
The data on the Japanese economy has already been released, while no more events are scheduled for today. Tomorrow, however, the main events are the US Retail Sales and Core Retail Sales, along with the US PPI. The volume of sales is expected to grow, after having slumped in the preceding three months. At the same time, the PPI is also anticipated to improve, thus there is a strong case for a stronger US currency.
Craig Erlam, Senior Market Analyst at OANDA, gives his prospects about the Fed raising interest rates this year. He said that there is no big 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 shares his opinion on why the rates are to rise in the near future: "the impression I get from the Fed is that we don't really need to see the interest rate hike in September, I think 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 pulls back to monthly PP
Last Friday, the US Dollar experienced a decline, falling in line with the forecast. The Greenback slid 38 pips, before stabilising at 120.16, just above initial support, namely the monthly pivot point. Meanwhile, the technical studies are showing bearish signs, suggesting a deeper dip today. The monthly PP remains the nearest support, and a trip towards 120 is a likely outcome.
Daily chart
Since the third of April, after a sharp fall, the US Dollar has been steadily gaining ground. There were minor setbacks on the way, but the general tendency stays unchanged. And even though we expect a decline today, the support trend-line is strong, and the overall bias remains bullish.
Hourly chart
Bullish sentiment unchanged
Market sentiment stays distinctly bullish, with the portion of longs unchanged at 74%. In the meantime, the percentage of buy orders slightly dropped, as 59% of them are now to acquire the Buck.
Sentiment of OANDA's traders improved over the weekend, now 61% of positions are long. Meanwhile, there is a higher proportion of the bulls at SAXO Group as well, with 56% of traders being long the Dollar.
Spreads (avg, pip) / Trading volume / Volatility
17% of traders expect the US Dollar to cost between 121.5 and 123 yen in three months
The mean forecast for July 13 is 121.67. However, the majority of survey participants (57%) expect the Greenback to cost more than 121.50 yen after a three-month period. The most popular price interval is 121.50-123.00, preferred by 17% of the surveyed. The second place is taken by 117.00-118.5, 123.00-124.50, and 124.50-126.00, and each of the three was chosen by 13% of the traders.