- The number of buy orders now accounts for 71% of the market (previously 77%)
- The share of bulls dropped from 58 to 57%
- Closest resistance is the cluster at 121.90, represented by the Bollinger band, monthly R2 and Dec 2014 high
- From below the price is supported by the weekly PP at 120.83
- 61% of traders see USD/JPY above 120 yen in three months
- Upcoming events today: US Durable and Core Durable Goods orders, US Flash Services PMI, US CB Consumer Confidence, US New Home Sales, FOMC Member Fischer Speech
In the meantime, Fed Chair Janet Yellen said the US central bank remained on track to hike interest rates this year, but will do so steadily, adding that she expected the world's number one economy to recover after a surprisingly soft first quarter. Yet, she highlighted once again that the move continues to be dependent on the health of the job market and pace of inflation growth. Even though, the US economy is set to rebound, it faces a number of headwinds including disappointing wage growth and high number of people who seek full-time employment. Yellen said that "it will be several years" before the Fed's benchmark rate is back to normal, which is close to 4% in an economy that is performing strongly. Most economists continue to expect the Fed to raise the fed funds rate in September, which is consistent with Fed policymakers' median forecast two months ago.
Sean Yokota, head of Asia Strategy at SEB, said that "if you look at Japan's public debt, which is about 243% of GDP, which is also one of the largest in the world." The economist comments that the BoJ needs to get the debt down before all the baby boomers retire, so they need to go through some fiscal consolidation, whether through tax hikes or through spending cuts. He also mentioned that such measures put Japan into recession, but he thinks that it also gave a bit of confidence to people; that this time when you increase the taxes, it does hit you short-term, but you can come out of the recession. Moreover, the Japanese economy is still doing relatively O.K. and the equity markets are still pretty high.
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 Core Durable Goods Orders
The Japanese SPPI has already been released today. Although the data showed improvements, it had little effect on the USD/JPY. Nevertheless, a vast amount of data is to be released on the US economy later today. The most high-influence event is the Core Durable Goods Orders, which, according to the forecast, are likely to rise at a higher rate than in the previous month. However, due to a large number of US data releases today, some of which are forecasted to show worse figures than their previous values, the end-game is uncertain.
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," Thieliant said.
USD/JPY takes another crack at Dec 2014 high
Although the USD/JPY did rise on Monday, gains were not as high as anticipated. The pair remained volatile for some time, but the Bollinger band at 121.77 still prevented it from surging too far. Ultimately, the US Dollar stabilised at 121.65, with expectations of another rally today. Even though technical studies retain mixed signals, the Greenback is likely to appreciate against the Yen and cross the Dec 2014 high, as the Bollinger band shifted above 122 psychological level. Nonetheless, the resistance area remains strong and might push the Buck back eventually.
Daily chart
Even though the USD/JPY started declining, after edging closer to the December 2014 high yesterday, the pair did not fall too deep and was able to regain bullish momentum by the end of the day. Today the US Dollar extended the rally, aiming to reach the December high once again and, possibly, to overcome it.
Hourly chart
Market sentiment remains bullish, but slightly weaker
The share of bulls dropped from 58 to 57%, whereas the number of buy orders now accounts for 71% of the market (previously 77%).
The market participants at other brokers appear to be less bullish on USD/JPY. Still only 52% of OANDA's traders are long the Buck. SAXO Bank traders, however, are more optimistic towards the Greenback, being that 61% of their positions are still long.
Spreads (avg, pip) / Trading volume / Volatility
Almost two thirds see USD/JPY above 120 yen in three months
The surveyed traders are mostly bullish on the Dollar. According to the latest data, 61% of them expect the US currency to cost more than 120 yen after three months. Nevertheless, the largest concentration of answers lies between 123.00 and 124.50, namely 18% them. Meanwhile, the average of the three-month forecasts collected between Apr 26 and May 26 is 120.67.