USD/JPY still under pressure

• 57% of commands are to acquire the US Dollar
• The share of longs retreated to its Wednesday's level (74%)
• 16% of traders expect the US Dollar to cost between 121.5 and 123 yen in three months
• Nearest resistance rests at 119.10, represented by the weekly S1, while closest support lies at 118.57, the Bollinger band
• Upcoming events: US CPI and Core CPI, US Preliminary UoM Consumer Sentiment

© Dukascopy Bank SA

The world's number one economy surprised with soft economic data, raising concerns about the economy's ability to rebound from a weak patch hit in the beginning of the year. According to the US Commerce Department, the number of building permits issued in March plummeted by 5.7% in March to a seasonally adjusted 1.039 million units down from February's total of 1.102 million. Analysts, however, had predicted building permits to decline by 2.0% to 1.080 million units in March. In addition to that, the report showed that US housing starts climbed by 2.0% in March to a seasonally adjusted 926,000 units from February's total of 908,000 units, against expectations for an advance of 15.9% to 1.040 million.

Separately, the number of Americans who filed for unemployment benefits rose last week compared to the previous week. Initial jobless claims across the country increased to a seasonally adjusted 294,000 in the week ended April 11, according to the Department of Labor. Economists, however, had expected claims slipping to 280,000 last week. The four-week moving average of claims, considered a better measure of labour market trends as it strips out weekly volatility, rose 250 to 282,750 last week. Claims below 300,000 are associated with a strengthening labour market. Meanwhile, continuing claims for the week ended March 28 came in at 2.268 million, compared to previous week's revised reading of 2.308 million.

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 CPI to grow

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 still under pressure

On Thursday, the USD/JPY currency pair slid for the fifth consecutive day due to an increase in unemployment claims in the US. The Greenback experienced some volatility, but in the end there was only a seven-pip decline. Today the Buck is likely to fall deeper and cross the 119 level, while closest support rests down at 118.58, represented by the Bollinger band. Meanwhile, the technical studies are emitting mixed signals on the daily time-frame.

© Dukascopy Bank SA

© Dukascopy Bank SA

Bullish sentiment slightly weaker

The share of longs retreated to its Wednesday's level (74%). At the same time, the portion of purchase orders increased two percentage points, 57% of commands are now to acquire the US Dollar.

The outlook of OANDA traders towards the US Dollar experienced no change over the day, as still 66% of positions are long. Meanwhile, SAXO Group client's sentiment has improved, and 75% of traders are now long the Buck.

Spreads (avg, pip) / Trading volume / Volatility

16% of traders expect the US Dollar to cost between 121.5 and 123 yen in three months

© Dukascopy Bank SA

© Dukascopy Bank SA