- The share of sell orders dropped from 69 to 60%
- There are 72% of traders with a positive outlook towards the Buck
- The nearest support is around 111.70, namely the monthly S3 and the weekly S1
- Major supply area is seen at 113.24 yen
- 56% of the survey participants expect the US Dollar to cost less than 120 yen in three months
- Upcoming events: US Markit Manufacturing PMI, US CB Consumer Confidence, US Existing Home Sales
The US Dollar declined against most major peers on Friday and over the weekened, despite improvements in CPI data. The Buck managed to outperform only commodity-based currencies, such as the Loonie, the Aussie and the Kiwi, adding 0.29%, 0.11% and 0.18% against them, respectively. At the same time, USD/JPY dropped 0.54% lower, as the Yen retained its safe-haven status, while the Cable soared 0.46% on positive UK fundamentals. Elsewhere, mild losses of 0.26% and 0.20% were seen against the Swissie and the Euro, respectively.
US underlying inflation surged to the highest level in more than four years in January, led by increasing rents and medical costs, a sign that price pressures started to build that could allow the Fed to gradually hike interest rates this year. According to the Labor Department, the consumer price index, excluding the volatile food and energy components, increased 0.3% last month. That was the biggest surge since August 2011 and followed a 0.2% rise in December. In the 12 months through January, the core CPI jumped 2.2%, the largest rise since June 2012 and exceeded the 1.9% average annualized increase over the last 10 years. The overall CPI was unchanged last month after slipping 0.1% in December. The CPI increased 1.4% in the 12 months through January, the biggest rise since October 2014, after gaining 0.7% in December.
The Fed hopes to see more widespread price increases taking hold this year, so that central bankers can deliver their promise to gradually hike short-term interest rates. Recent economic and international developments have raised doubts among analysts and even within the US central bank whether rate hikes are still the right decision. Tighter financial market conditions in the wake of a recent sharp stock market sell-off and weakening domestic and global growth have wiped out bets for a March rate increase. The probabilities of rate hikes for the rest of the year are slim.
Vatsal Srivastava, director at the Blackwater Consulting, explains why the US Dollar is a advancing against the Yen this week. Even though he says that there was nothing fundamentally driving USD/JPY on Monday, one of the key drivers is the falling oil prices, which is actually boosting the Yen, in his opinion, as there is an addition cause for more QQE. Vatsal Srivastava also mentions that "it is going to be a hard economic ride ahead and there seems to be no light on the horizon for Japan as of now". "Lets hope for the best," he added.
US Markit Manufacturing PMI
The only relevant event to drive the USD/JPY today is the US Markit Manufacturing PMI. The Manufacturing Purchasing Managers Index (PMI) is released by the Markit Economics and captures business conditions in the manufacturing sector. As the manufacturing sector dominates a large part of total GDP, the manufacturing PMI is an important indicator of business conditions and the overall economic condition in the United States. However, no significant change is expected in the PMI, thus, a mild reaction is likely to take place, leaving the USD/JPY relatively unchanged, unless risk-aversion will strengthen the Yen again.USD/JPY oscillates around 112.50
Even despite higher inflation figures, the US Dollar was unable to edge higher against the Japanese Yen on Friday. Dollar bulls might push the pair higher today, but if not the weekly PP at 113.24, then the cluster around the 114 yen should stop the possible rally. Technical studies, on the other hand, suggest the USD/JPY is to suffer a third consecutive decline, with the nearest support located circa 111.70, namely the monthly S3 and the weekly S1. The Greenback was unable to stabilise that low for more than a year, and no event is expected to push the pair towards that area today.Daily chart
The USD/JPY currency pair extended trade within the borders of a descending channel, putting the lower boundary to the test on Friday. Since demand was able to push the pair higher, we should now see the Greenback reach 113.20 yen, before another short-term sell-off occurs.
Hourly chart
SWFX sentiment stays bullish
Traders at OANDA and Saxo Bank have a diametrically opposite view of the pair's future. Clients of both brokers are mostly bullish. Canadian-based foreign exchange company reports that 63% of open positions are long (previously 58%), and the Danish bank reports that 58% of its clients' positions are long, compared to 59% previously.
Spreads (avg, pip) / Trading volume / Volatility
More than a half expect the exchange rate to fall under 120 yen
The majority of the survey participants (56%) expect the US Dollar to cost less than 120.00 yen in three months. The most popular choice is the 120.00-121.50 price intervals, selected by 17% of the voters; however, according to the votes collected between Jan 22 and Feb 22, the mean forecast for May 22 is 118.15. At the same time, 15% of the surveyed believe the Greenback could fall in the 111.00-112.50 price interval after a three month period.