- The share of buy orders dropped from 64 to 61%
- Long positions now account for 71%
- 19% of traders expect the US Dollar to 123.00-124.50 yen after a three-month period
- Nearest significant resistance rests at 119.85, represented by the 55-day SMA, while closest support lies at 119.58, the 20-day SMA
- Upcoming events: US Existing Home Sales, US MBA Mortgage Applications, US Crude Oil Inventories
The timing of the first US interest rate hike in a decade continues to depend on economic performance, according to New York Federal Reserve President William Dudley. In comments, Dudley repeated cautious optimism that the world's biggest economy will continue to grow and that inflation will begin to firm later this year. While the US economy has further to reach the Fed's dual mandate of full employment and 2% inflation, the data will "hopefully" support a rate hike later this year, Dudley said. The Fed is expected to raise rates by June at the earliest but more likely in the second half of the year, according to forecasts by economists and Fed officials.
Meanwhile, US consumer sentiment rose more than expected in April to the second-highest level in more than eight years as Americans were more optimistic about the economic outlook and inflation. The University of Michigan said that its preliminary index of sentiment rose to 95.9 this month from 93 in March. The survey's sub-index on business conditions climbed to 108.2 from 105.0 in March, reaching the second-highest level since January 2007, while a reading on consumer expectations rose to 88.0, up from 85.3. Americans expected an inflation rate of 2.5% in the next year, the lowest level since September 2010, and down from 3% in the previous month.
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."
US Existing Home Sales
US Existing Home Sales Today the US trade Balance figures have improved, thus strengthening the Yen against the US Dollar. Nonetheless, the US Existing Home Sales are expected to improve, however, the 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 even further.
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 suffers a setback
Yesterday, the US Dollar confirmed the forecast, as it appreciated against the Yen for the second day. There were no surprises, only that USD/JPY pair tested the 119.85 resistance, before settling at 119.65. Nonetheless, the Greenback is likely to weaken versus the Yen today, as the Existing Home Sales pressured the Buck in the last five months. Meanwhile, technical studies are also suggesting a decline. Immediate support rests at 119.41; however, we should not rule out a possibility of a hike towards 120.11 in case US fundamentals exceed expectations.
Daily chart
The US Dollar appears to be regaining the bullish momentum steadily. After breaching the trend-line on Monday, the USD/JPY pair extended gains through Tuesday. However, today the fundamentals might throw the Greenback back down, beginning to form a rounding top.
Hourly chart
Sentiment remains bullish
Long positions lost one more percentage point for the fifth time in a row, now accounting for 71%. At the same time, the share of buy orders dropped from 64 to 61%.
OANDA's trader sentiment weakened today, with long positions falling from 68 to 64%. Meanwhile, the SAXO Group clients' outlook remains positive, although slightly weaker. Now 70% of traders are long the Buck (previously 71%).
Spreads (avg, pip) / Trading volume / Volatility
19% of traders expect the US Dollar to 123.00-124.50 yen after a three-month period
The mean forecast for July 22 is 121.37. The majority of traders (63%) expect the Greenback to cost more than 120 yen in three months. The most popular choice was 123.00-124.50, selected by 19% of survey participants, while the second place was taken by 121.50-123.00, voted for by 15% of traders.
Dukascopy traders became more bearish on USD/JPY currency pair, as now almost 57% believe in negative development.
TaoMarx, one of the survey participants, suggests the USD/JPY pair will advance. He commented on his choice, saying that "the pair is showing a consolidation zone on the four-hour chart, but looking bullish on the daily, but as it loses the support, a trend reversal maybe forming." A trader with a bearish perspective, Daytrader21, assumes the USD/JPY will suffer losses, as it is heading towards retesting the 118.00 and then 116.00 levels before another leg higher.