- The number of purchase orders slid to its Friday's level of 56%
- Only 53% of traders now hold long positions (previously 54%)
- Closest resistance is located at 125.32, represented by the weekly R1
- From below the price is supported by the weekly PP at 123.38
- 65% of traders see USD/JPY above 120 yen in three months
- Upcoming events today: US Factory Orders, FOMC Member Brainard Speech
Meanwhile, US consumer spending was unexpectedly flat in April as households cut back on purchases of cars and continued to increase savings. The unchanged reading in consumer spending followed a 0.5% increase in March. The Commerce Department report also showed no inflation pressures, with a price index for consumer spending recording its smallest gain since late 2009 on an annual basis.
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 Factory Orders
Data concerning the Japanese economy has already been released, and showed a significant increase compared to the previous months. However, the US Factory Orders data is still to be released later today, the share of which is expected to drop from 2.1 to 0.0%. According to the given data and the forecast, the US Dollar should be pressured by a stronger Yen by the end of the day.
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 attempts to stabilise above 125
The US Dollar appreciated against the Yen for another day, but was unable to reach the resistance at 125.00. Despite closing trade under the nearest resistance level, the USD/JPY still experienced a significant gain. Technical indicators are giving mixed signals, but we still expect the Greenback to edge higher. Immediate resistance now rests at 125.32, but the pair is likely to settle just over the 125 psychological level.
Daily chart
Although the trend-line was pierced to the downside, the 124 psychological level kept preventing the USD/JPY from declining. The US Dollar received a boost in the second half of the day, which allowed the give pair to rise close to the 125 level. Although today a new peak was established, the Buck began falling down again.
Hourly chart
Bulls still prevailing over bears
Market sentiment among SWFX traders weakened again, as only 53% of traders now hold long positions (previously 54%). The number of purchase orders slid to its Friday's level of 56%, down from 59% yesterday.
The market participants at other brokers appear to be more bullish on USD/JPY, except for OANDA traders; their bullish sentiment remains unchanged at 53%. Meanwhile, SAXO Bank traders are more optimistic towards the Greenback, being that 56% of their positions are 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, 65% 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 19% them. Meanwhile, the average of the three-month forecasts collected between May 2 and June 2 is 121.54.