- Sell orders took over the majority of the market, namely 51% of it
- Bullish SWFX market sentiment remains unchanged at 60%
- Nearest resistance rests around 123.79, represented by the weekly PP
- There still seems to be relatively strong demand at 122.53
- 20% of traders expect the Greenback to cost between 126 and 127.5 yen in three months
- Upcoming events today: FOMC Member Williams Speech, US Existing Home Sales
The US Dollar mostly suffered losses yesterday, with exception versus the Kiwi, as it gained 0.89% against it. The largest decline of 0.64% was detected against the Aussie, following with a 0.38% and 0.30% drops versus the Yen and the Sterling, respectively. However, the Buck remained relatively unchanged against the Loonie (-0.05%) and the Swiss Franc (-0.03%).
US consumer inflation recorded the largest monthly rise in May in more than two years, a sign inflationary pressures have started to build in the world's number one economy. The consumer price index increased a seasonally adjusted 0.4% in the reported month from April, according to the Labor Department, the largest gain since February 2013. The main upside contribution came from higher gasoline prices. At the same time the core measure, which excludes food and fuel, climbed 0.1%, the smallest increase so far this year, following the 0.3% rise in April. Measured on an annualized basis, overall prices remained unchanged, while core prices climbed 1.7%. The consumer-price index has now increased for four consecutive months after sliding from November through January. Yet, Federal Reserve policy makers are looking for signs of firmer inflation before they start to hike short-term interest rates from near zero. The central bank's preferred inflation gauge, the personal consumption expenditures price index, ticked up 0.1% from a year earlier in April. The measure has remained below the Fed's 2% annual inflation target for three years.
A separate report showed the number of Americans applying for unemployment benefits declined in the week ended June 13. Initial jobless claims dropped to 267,000 in the reported period, compared with 279,000 a week earlier.
Sean Yokota, head of Asia Strategy at SEB 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. Overall, Yokota reckons that 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."
FOMC Member Williams Speech
The BoJ stated no changes in its monetary policy today. As a result, the USD/JPY slightly strengthened. At this point, the only relevant event today remains the FOMC Member Williams Speech. Perhaps, we might see some more insight concerning the interest rate hike and a more hawkish response. On Monday, however, the Existing Home Sales, which is a leading economic health indicator, might strengthen the Greenback further, if the data does not disappoint. During the previous releases the data tended to disappoint, thus, this trend might persist on the Monday's release as well.
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 stuck between 123.00 and 123.80
The USD/JPY currency pair suffered losses on Thursday, with the exchange rate reaching the support cluster at 122.53. However, the trade still closed at the 123 major level, which might cause a rebound today. The nearest resistance still rests around 123.85, represented by the weekly PP and 20-day SMA, keeping the Buck bound in a tight range. Meanwhile, technical indicator keep giving bearish signals, conversely.
Daily chart
As anticipated, after falling down by approximately 100 pips, the USD/JPY started regaining its bullish momentum. The pair has been edging higher in the early hours today as well, giving hope of a possibility to close above 123.00. However, the 200-hour SMA is likely to limit any gains if the exchange rate manages to reach that far.
Hourly chart
Bulls regain confidence in the Buck
Bullish SWFX market sentiment remains unchanged at 60%, whereas the sell orders took over the majority of the market, namely 51% of it.
OANDA and SAXO clients retain their bullish perspectives towards the Buck. The share of longs at OANDA edged up from 54 to 60%, while the SAXO Bank's sentiment slightly improved, adding three percentage points up to 67%.
Spreads (avg, pip) / Trading volume / Volatility
20% of traders expect the Greenback to cost between 126 and 127.5 yen in three months
According to the survey conducted between May 19 and June 19, 68% of the participants expect the US Dollar to cost more than 123 yen in three months. However, the mean forecast for September 19 is 124.78. Meanwhile, the 126.00-127.50 price interval received the largest amount votes, namely 20%.
According to the survey conducted between May 10 and June 10, 60% of the participants expect the US Dollar to cost more than 123 yen in three months. However, the mean forecast for September 10 is 122.87. Meanwhile, the 126.00-127.50 price interval received the largest amount votes, namely 19%.
The end of the current week is forecasted to bring some important fundamental data, namely the official monetary policy statement by the Policy Board of the Bank of Japan on Friday, which may have a considerable impact on pair's perspectives. From the American side, traders could pay additional attention, to Fed's interest rate decision on Wednesday and release of the consumer price index by the end of the week. In overall the traders are pretty much undecided on pair's future development, as trader's votes divided almost equally.
A trader with a bullish perspective towards the USD/JPY, WallStreet6, says that "with the Fed meeting up ahead and positive data coming from the US economy, I think that we will hear some statement on earlier than expected rate hike and the USD should strengthen further." However, Rokasltu, another Dukascopy community member, expects the US Dollar to decline versus the Yen. "In my opinion, USD/JPY might go down, due to quite good latest economic results from Japan".
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