- 66% of orders are now to acquire the Dollar (previously 57%)
- The share of long positions went down from 75 to 74%
- 16% of traders expect the US Dollar to cost between either 121.5-123 or 123-124.5 yen in three months
- Nearest resistance rests at 119.28, represented by the 100-day SMA, while closest support lies at 118.44, the Bollinger band
- Upcoming events: Japanese Trade Balance, US Existing Home Sales, US Crude Oil Inventories
US consumer price inflation continued to rise in March, signalling inflation is starting to firm. The Labor Department said the Consumer Price Index climbed 0.2% month-on-month during in March, following the same growth seen in February. The cost of living in the US excluding food and fuel ticked up 0.2% in the reported period for a third consecutive month. Back in February, the measure rebounded from its largest drop since December 2008, as it trashed 0.7% in the beginning of the year. January booked the third month in a row of decline in the index. On an annual basis, inflation in the US recorded a 0.1% fall during the reported month, compared to the flat reading in February.
A separate PCE reading, a closely watched inflation gauge by the Fed, continued to show a lukewarm growth. The latest headline PCE price index annual rate was 0.1% higher, against expectations for a rise of 0.2%. Personal spending declined 0.2% in January. The core PCE price index rose at an annualized rate of 1.4%, overshooting forecasts for 1.3%, after climbing at a rate of 1.3% in January. The Fed uses core PCE as a tool to help determine whether to hike or cut interest rates, with the aim of keeping inflation at a rate of 2% or below.
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."
Fundamental background
Neither on Monday, nor on Tuesday, will there be any data releases concerning the Japanese and the US economies. Nonetheless, on Wednesday the Japanese Trade Balance is expected to improve, as well as the US Existing Home Sales. However, the Home Sales have shown worse-than-expected figures for the past four months, hence; if the pattern persists, the Greenback will likely weaken against the Yen.
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 be capped at 119
The US Dollar declined against the Japanese Yen for the fifth consecutive day on Friday. USD/JPY tested support around the lower Bollinger band, before crossing the 119 level and settling at 118.83. The technical studies are showing mixed signs, while a correction is likely to take place on Monday; however, the pair should not rise above the psychological 119 level. Furthermore, we should not rule out the possibility of a fall towards 118.45.
Daily chart
After sliding down for a whole week, the USD/JPY pair has reached a low, not seen for the past three weeks. A rebound took place afterwards, and the resistance trend-line was breached. However, the ultimate movement was still to the downside. If any gains happen, the new trend-line should prevent them, and the Greenback is to remain relatively unchanged over the day.
Hourly chart
Sentiment remains bullish
Market sentiment slightly worsened, as the share of long positions went down from 75 to 74%. The number of net orders, on the other hand, increased, as 66% of orders are now to acquire the Dollar (previously 57%).
The outlook of OANDA traders towards the US Dollar slightly improved, as 67% of positions are now long. Meanwhile, SAXO Group client's sentiment remains bullish, with the same portion of traders as last time (75%) remaining long the Buck.
Spreads (avg, pip) / Trading volume / Volatility
16% of traders expect the US Dollar to cost between either 121.5-123 or 123-124.5 yen in three months
The mean forecast for July 20 is 121.67. However, the largest half of the traders (57%) expect the US Dollar to cost more than 121.5 yen in three months, while the most popular choices are 121.5-123 and 123-124.5 intervals, selected by 16% of survey participants each. The second most popular decision is divided between 117-118.5 and 124.5-126, both chosen by 12% of traders.