- Sell orders are outnumbering the buy ones by only 4% points
- Bullish traders' sentiment return to its last Wednesday's level of 73%
- The monthly S2 and the weekly PP around 109.00 represent immediate resistance
- Support is around 107.55
- 50% of the survey participants expect the US Dollar to cost less than 114 yen in three months
- Upcoming events: US Retail and Core Retail Sales, US PPI and Core PPI, US Crude Oil Inventories
The American Dollar suffered losses against most major peers on Tuesday, amid a poor reading of the US Import Price Index. The Buck, however, managed to outperform the Yen, adding 0.56%, while also appreciating 0.22% against the Euro and 0.10% versus the Swiss Franc. Meanwhile, an increase in oil prices caused commodity currencies to edge higher against the Greenback, with the AUD/USD and NZD/USD edging 1.12% and 0.95% higher, respectively, whereas the USD/CAD sustaining a 1.08% loss. At the same time, the Cable inched up 0.27% on mostly stronger UK inflation data.
US consumers' expectations for inflation fell in March following a rebound from record lows in the prior month, adding to the uncertainty over how quickly the Fed can proceed with interest rate increases in the coming months. According to the Federal Reserve Bank of New York, expectations for inflation one year in the future declined to 2.53% in March, down from 2.71% in February. That was the fourth drop in the last six months and put expected inflation at just over a tenth of a percentage point above January's reading of 2.42%, the lowest level since the survey began in mid-2013. Moreover, the survey of consumer expectations predicted inflation to be 2.5% three years from now, compared with 2.6% in February. In January, expected inflation three years ahead was 2.45%, marking the lowest level since June 2013.
The Fed views inflation expectations as important information of where inflation is headed and also a reading on the credibility of its 2% inflation target. The Fed supposes too-low inflation has a sign the US economy is not firing on all cylinders and at risk of slowing. The personal consumption expenditure index, the Fed's preferred inflation gauge, climbed just 1% in the 12 months ended in February, down from 1.2% in the prior month. Inflation has been below the Fed's 2% goal since April 2012.
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 Retail and Core Retail Sales, US Beige Book
Today important economic data releases concern the US economy and, therefore, should have an impact on the US Dollar. First of all, the US Retail Sales, released by the US Census Bureau, measure the total receipts of retail stores. Monthly percent changes reflect the rate of changes of such sales. Changes in Retail Sales are widely followed as an indicator of consumer spending. At the same time the Core Retail Sales are due, but they exclude the automobile sector. Another event is the US Beige Book. The Beige Book reports on the current US economic situation. Through interviews with key business contacts, economists, market experts, and other sources are gathered by each of the 12 Federal Reserve Districts. The survey gives a picture of the overall US economic growth.USD/JPY: downside risks persist
The US Dollar managed to outperform the Japanese Yen on Tuesday, but with gains limited by the immediate resistance in face of the monthly S2. According to technical indicators, the USD/JPY currency pair is now likely to prolong its previous one-week decline, with the closest support located around 107.55, represented by the 18-month low and the Bollinger band. However, the USD now risks establishing a new low, with the second support area resting circa 106.60, namely the monthly S3 and the weekly S1. Technical indicators are bolstering this scenario with their bearish signals, but upbeat US fundamentals might still trigger a rally, causing the Buck to climb over the 109.00 mark.Daily chart
Momentum, received from the retest of the 18-month low of 107.63, appears to have been sufficient to continue rebounding. However, the exchange rate closes in on the 200-hour SMA, which could turn the tide around, resulting in the continuation of the bearish trend.
Hourly chart
Bulls remain in control
Bulls also dominate the OANDA market, where 70% of open positions are long, compared to 63% on Tuesday. The sentiment as reported by SAXO Bank remains bullish - 60% of currently open positions are long, down from 62% on Tuesday.
Spreads (avg, pip) / Trading volume / Volatility
Exactly a half expect the exchange rate to fall under 114 yen
Exactly a half of the surveyed (50%) now assumes that the US Dollar is to cost less than 114.00 yen after three month time. The most popular choice implies that the Greenback is to cost somewhere between 114.00 and 115.50 yen in three months, selected by 16% of the voters. According to the votes collected between March 13 and April 13, the mean forecast for July 13 is 113.04. At the same time, 15% of the surveyed believe the Greenback could cost between 106.50 and 108.00 yen in three months.
The bearish outlook of the Dukascopy Community members kept growing, as now 69% of traders are short the USD/JPY, while the remaining 31% are long.
Compared to the previous week, Panzer now has a negative outlook towards the Buck. He said that "the advantages are still on the downside, strong downtrend, there is no bottom in sight."
Meanwhile, Likerty expects the US Dollar to outperform the Japanese Yen by the end of the week. "I am expecting a bit of bullish correction before diving for 107.50's again," he commented, also adding that "probably the USD/JPY and EUR/USD will be the slowest pairs this week."