- The gap between buy and sell orders narrowed from 4 to 2% points
- Nearly three quarters (74%) of all open positions are long
- The monthly S1, the weekly R1 and the 20-day SMA around 110.80 represent immediate resistance
- Support is at 109.16
- 50% of the survey participants expect the US Dollar to cost less than 114 yen in three months
- Upcoming events: US CPI and Core CPI, US Jobless Claims, FOMC Member Powell Speech
The risk-on sentiment helped the US Dollar to post gains across the board on Wednesday. The largest gains of 1.21% and 0.99% were registered against the Swiss Franc and the Euro, respectively. The USD/JPY also experienced a rather sharp rally, edging 0.74% higher. Meanwhile, the Cable surged 0.50%, due to the weakened amid ‘Brexit' fears Sterling, followed by a 0.45% rally against the Loonie and 0.40% versus the Aussie. The Buck only had troubles outperforming the third commodity currency, namely the Kiwi, as the NZD/USD edged only 0.05% lower.
US retail sales unexpectedly declined in March as households cut back on purchases of automobiles, reinforcing the evidence that economic growth weakened in the first quarter and a sign of consumers caution amid slow wage growth and overseas troubles. Sales at retail stores and restaurants slid by a seasonally adjusted 0.3% in March, despite the forecasted 0.1% gain, according to the Commerce Department, following a flat reading in February and a drop in January. Most economists had not expected from Americans to be so cautious about their spending this year, despite steady job gains and lower gas prices. This is a key reason why a lot of analysts now believe the world's number one economy barely expanded in the first quarter of 2016. In the meantime, core retail sales rose 0.2% last month after being little changed in February. Economists claim that the increase was due to a 0.9% jump in receipts at service stations that probably reflected the recent pickup in gasoline prices.
In addition to that, the surprise weakness in the retail sales data underscores concerns among several Federal Reserve officials, who have dramatically pared back their expectations for rate rises this year amid increased concerns about the growth outlook, turbulence abroad and troubles in the energy and industrial sectors.
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 CPI and Core CPI, US Jobless Claims
Today the most important economic data releases are the US CPI and Core CPI. The Consumer Price Index, released by the US Bureau of Labor Statistcs, is a measure of price movements by the comparison between the retail prices of a representative shopping basket of goods and services. The purchase power of USD is dragged down by inflation. The CPI is a key indicator to measure inflation and changes in purchasing trends. The Core CPI excludes the food and the energy sectors. The US Jobless Claims are also to be released. The Initial Jobless Claims released by the US Department of Labor is a measure of the number of people filing first-time claims for state unemployment insurance. In other words, it provides a measure of strength in the labor market. A larger than expected number indicates weakness in this market which influences the strength and direction of the US economy. However, the Jobless Claims tend to have a mild impact on the exchange rates..USD/JPY in limbo ahead of inflation data
The risk appetite returned to the markets on Wednesday, causing the USD/JPY currency pair to edge higher, despite rather weak US Retail Sales figures. Momentum, received after reconfirming the 18-month low, appears to be sufficient for the Buck to sustain a short-term bullish trend. Consequently, the US Dollar is expected to continue rising versus the Japanese Yen, with the closest area to limit the gains located around 110.80, represented by the monthly S1, the weekly R1 and the 20-day SMA. However, according to technical indicators, the given pair is to suffer a loss today, falling back under the 109.00 major level, eventually putting the 18-month low to the test again.Daily chart
The US Dollar prolonged its rally yesterday, with the exchange rate eventually climbing over the resistance line and nearing the 200-hour SMA. The given SMA appears to have provided sufficient resistance to cause a U-turn, which can lead the USD/JPY pair back towards the 18-month low.
Hourly chart
Bulls remain in control
Bulls also dominate the OANDA market, where 71% of open positions are long, compared to 70% on Wednesday. The sentiment as reported by SAXO Bank remains bullish - 62% of currently open positions are long, down from 60% on Wednesday.
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 19% of the voters. According to the votes collected between March 14 and April 14, the mean forecast for July 14 is 113.03. 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."