- There are 67% of all pending orders to sell the Greenback
- 75% of all open positions are long
- Resistance is around 113.35
- Immediate support is around 112.39, namely the weekly S1
- 53% of the survey participants expect the US Dollar to cost less than 114 yen in three months
- Upcoming events: US Wholesale Inventories and US Crude Oil Inventories, Japanese PPI
On Tuesday the US Dollar managed to outperform most major currencies, with exception against the Japanese Yen. The USD/JPY dropped 0.74% lower, as demand for safe haven assets, namely the Yen, was higher yesterday. The Buck gained the most versus the Loonie and the Kiwi, adding 0.96% and 0.86%, respectively. Against the third commodity-based currency the US Dollar surged only 0.40%, while also rising 0.34% versus the British Pound. At the same time, the EUR/USD and USD/CHF both remained relatively unchanged, adding and losing 0.02%, respectively.
Japan's economy slowed less than initially thought in the last quarter of 2015, though the country remains on the brick of falling into another recession despite Prime Minister Shinzo Abe's attempts to underpin growth. Revised data for gross domestic product showed the world's third biggest economy shrank at an annualized pace of 1.1% in the December quarter from the previous three-month period, compared with the initial estimate of a 1.4% contraction. Private consumption was the main drag on Japan's economy in the reported period, dropping a revised 3.4% on an annualized basis, from an originally estimated 3.3%. However, growth in business investment was revised up to an annualized gain of 6.3%, compared with the 5.7% increase initially reported. For the whole of 2015, the Japanese economy came to a revised 0.5% from an initially estimated 0.4%.
The moribund economic backdrop will keep the Bank of Japan under pressure to further expand monetary stimulus. However, policy makers may refrain from bold measures when they meet next week for a rate review, after introducing negative interest rates in January. Moreover, weak growth could boost market speculation that Abe may postpone a second consumption tax hike to 8% from 8% scheduled in April next year.
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 Crude Oil Inventories is the only possible driver
Concerning fundamental events, the only relevant one today is the US Crude Oil Inventories, which could somewhat influence the American currency. The EIA Crude Oil stockpiles report is a weekly measure of the change in the number of barrels in stock of crude oil and its derivates, and it's released by the Energy Information Administration. This report tends to generate large price volatility, as oil prices impact on worldwide economies, affecting the most, commodity related currencies such as the Canadian dollar. Despite it has a limited impact among currencies, this report tends to affect the price of oil itself, and, therefore, had a more notorious impact on WTI crude futures. Early tomorrow the Japanese PPI is due, or the Domestic CPGI. The Domestic Corporate Goods Price Index released by the Bank of Japan is a measure of prices for goods purchased by domestic corporates in Japan. The DCGPI is correlated with the CPI (Consumer Price Index) and is a way to measure changes in manufacturing cost and inflation in Japan. It is likely to set the mood for the Asian session on Thursday.USD/JPY to edge close to 112.00
On Tuesday the risk-off sentiment sparked demand for the safe haven Yen, causing the USD/JPY currency pair to reach the second support level, namely the weekly S1. Today this area acts as the immediate support, whereas the 20-day SMA and the weekly PP form a resistance cluster around 113.35. Nevertheless, the bearish momentum is expected to prevail, but with the 112.00 psychological level limiting the dips. The Bollinger band is bolstering this area, but volatility might even edge closer to the 111.00 mark. Meanwhile, technical studies also suggest the negative outcome is most probable.Daily chart
Since the beginning of the week the USD/JPY has been sliding down, unable to edge above the resistance line. If the Yen strengthens again today, the down-trend will receive an extra confirmation, which could then continue providing resistance through the rest of the week, until the pair reaches the 111.00 level on Friday.
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 61% of open positions are long, compared to 59% on Tuesday, and the Danish bank also reports that 61% of its clients' positions are long, compared to 58% previously.
Spreads (avg, pip) / Trading volume / Volatility
More than a half expect the exchange rate to rise above 114 yen
The majority of the survey participants (53%) expect the US Dollar to cost more than 114.00 yen in three months. The most popular choice implies that the Greenback is to rise above 120.00 yen in three months, selected by 20% of the voters. According to the votes collected between Feb 09 and March 09, the mean forecast for June 09 is 114.61. At the same time, 18% of the surveyed believe the Greenback could fall in the 111.00-112.50 price interval after a three month period.
This week's overall sentiment for the USD/JPY pair again is bullish, as 70.6% of all traders are supporting the positive case for the pair, while more than 22% of traders expect the pair to close above the 113.8 level towards the end of present working week.
Among the traders with a positive outlook towards the USD/JPY currency pair, Besim76 believes that traders moved away from safe havens, amid poor fundamental data from Japan. As a result, the US Dollar could end the week higher against the Yen again.
At the same time, megajorko has a negative perspective. He said that "the yen has performed weaker than all major currencies, but there were very strong bulls in the yen, so I suppose the bearish power to continue after this week's correction."