- The share of orders to purchase the US currency increased from 51 to 65%
- Market sentiment remains bullish at 70%
- The nearest support is around 113.50, namely the monthly S2 and the weekly PP
- Major supply area is seen at 114.65 yen
- 64% of the survey participants expect the US Dollar to cost less than 120 yen in three months
- Upcoming events: US Chicago PMI, US Pending Home Sales, Japanese Household Spending, Japanese Unemployment Rate, Japanese Capital Spending, Japanese Final Manufacturing PMI
Amid a strong reading of the US GDP, the Greenback was able to post solid gains against most major currencies, with exception against the Loonie. The US Dollar added the most against the Aussie and the Kiwi, surging 1.51% and 1.41%, respectively. Other significant gains were registered against the Sterling (0.64%), the Swiss Franc (0.65%), the Euro (0.79%) and the Japanese Yen (0.89%). The only loss, however, was seen against the Loonie, which accounted for only 0.13%.
Japan retail sales unexpectedly dropped for the third month in a row in January, indicating continuing softness in consumer sentiment and suggesting consumer demand is unlikely to spur a recovery in growth this quarter. Sales slid 0.1% year-on-year in January, compared with economists' forecast for a 0.2% increase. Measured on a monthly basis, retail sales dropped 1.1% in January, the Ministry of Economy, Trade, and Industry reported. Weak consumer spending has been a drag on overall growth of the world's third biggest economy in recent quarters. Gross domestic product contracted 1.4% in the fourth quarter amid bigger-than expected decline in household spending. Private consumption decreased 0.8% over the fourth quarter, subtracting 0.5 percentage points from GDP growth. Meanwhile, a separate report showed Japan's industrial output increased 3.7% in January, up for the first time in three months. Manufacturers predict output to decline 5.2% in February and increase 3.1% in March.
Prime Minister Shinzo Abe's three-arrowed based economic strategy, which includes monetary expansion, fiscal stimulus and structural reforms, has seen the economic performance of the world's third biggest economy patchy at best so far.
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 Pending Home Sales is the only relevant release
From the US side attention should be paid to Pending Home Sales release. The Pending Home Sales are released by the National Association of Realtors and are a leading indicator of trends of the housing market in the US It captures residential housing contract activity of existing single-family homes. As the housing market is considered as a sensitive factor to the US economy, it generates some volatility for the USD. From the Japanese side, no further releases are expected, but a number of data closer to midnight is likely to set the mood for early trade on Tuesday. The main gauge of Yen crosses performance, however, remains the risk sentiment, which is largely influenced by the Chinese economy.USD/JPY retreats on risk aversion
Although the better-than-expected US GDP caused the Greenback to appreciate against the Japanese Yen on Friday, these gains are under the risk of being erased today. The Yen strengthened today, as a slump in Chinese stocks triggered a return of risk-off sentiment. The pair, however, is supported by the monthly S2 and the weekly PP around 113.45, but losses could even extend towards the 112.00 level, where the weekly S1 coincides with the monthly S3. Technical indicators are bolstering the possibility of this negative outcome, whereas positive fundamentals could still spark a buying spree and stimulate a rebound.Daily chart
Ever since the USD/JPY currency pair broke out of the descending channel to the upside, the rally was sharp. The 200-hour SMA failed to provide resistance, although momentum appears to have reversed after the 114.00 level was reached. The pair is now facing the 200-hour SMA, which could provide support and keep the exchange rate above 113.00, but risk aversion could still drive the Buck lower.
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 65%), and the Danish bank reports that 57% 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 (64%) 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 18% of the voters; however, according to the votes collected between Jan 29 and Feb 29, the mean forecast for May 29 is 116.94. At the same time, 15% of the surveyed believe the Greenback could fall either in the 111.00-112.50 price interval or in the 114.00-115.50 price interval after a three month period.