USD/JPY to regain momentum

• 55% of commands are now to acquire the Buck, compared to 41% yesterday
• More traders are long the US Dollar today, namely 75% of them (previously 74%)
• 17% of traders expect the US Dollar to cost between 121.5 and 123 yen in three months
• Nearest resistance rests around 119.3, represented by the 100-day SMA, while closest support lies at 119.10, the weekly S1
• Upcoming events: US Building Permits, US Unemployment Claims, US Housing Starts, US Philly Fed Manufacturing Index, FOMC Members Lockhart and Fischer Speeches

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US industrial production dropped more than expected in March and posted the first quarterly fall since the end of the Great Recession. Industrial production, which measures the output of manufacturers, utilities and mines, declined a seasonally adjusted 0.6% from the previous month, according to the Federal Reserve. The main contributor to the fall came from a payback in utility output, which contracted 5.9% from the prior month. In addition to that, production of mines fell 0.7%, marking the fifth decline in six months, as lower crude oil prices continue to weigh on the sector. For the first quarter of 2015, industrial production declined at an annual rate of 1%.

A separate report showed sentiment among US homebuilders rebounded after a three-month slide and rose to the highest level this year. The NAHB/Wells Fargo Housing Market index increased to a preliminary 56 in April from a revised 52 in the preceding month. Readings above 50 mean more builders see housing market conditions as favourable than poor. The reading has not been below the 50-mark threshold since June 2014 and stood at 46 during April 2014. Moreover, builders are feeling confident about the outlook for the rest of the year, as the gauge, which tracks sales expectations for the next six months, increased to 64 points, its highest level so far this year.

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."

Several US economic figures expected to improve

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."

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 to regain momentum

On Wednesday, the US Dollar dropped versus the Yen for the fourth day. Even though the loss was not as substantial as anticipated, USD/JPY still tested the Bollinger band. In the end the Greenback settled at 119.13, just over the weekly S1. Meanwhile, the technical studies are still showing mixed signs, but a rebound is expected. Nearest resistance rests at 119.33, though a rally may well extend to the 20-day SMA at 119.64.

© Dukascopy Bank SA

© Dukascopy Bank SA

Bulls take 3/4 of the market

More traders are long the US Dollar today, namely 75% of them (previously 74%). The share of buy orders grew, and 55% of commands are now to acquire the Buck, compared to 41% yesterday.

OANDA's traders grew even more confident in the Greenback, as long positions gained two more percentage points, and now they account for 66% of the market. Meanwhile, SAXO Group's market sentiment deteriorated a bit, as 73% of traders are now long the Buck (previously 74%).

Spreads (avg, pip) / Trading volume / Volatility

17% of traders expect the US Dollar to cost between 121.5 and 123 yen in three months

© Dukascopy Bank SA

© Dukascopy Bank SA