- The number of orders to acquire the USD takes up 70% of the market
- 73% of traders have a positive outlook towards the Greenback
- The weekly R1 at 109.76 represents immediate resistance
- Support is at 108.70
- 57% of the survey participants expect the US Dollar to cost more than 114 yen in three months
- Upcoming events: US Existing Home Sales, US Crude Oil Inventories, US Philadelphia Fed Manufacturing Index, US Jobless Claims
The overall situation barely changed over the day, as the US Dollar weakened against most major peers on Tuesday. The largest decline was seen against the Kiwi, namely 1.33%, amid a strong reading of the GDT Price Index yesterday. Other notable losses were seen against Loonie, the Sterling and the Aussie, with the US Dollar falling 0.88%, 0.84% and 0.81% against them, respectively. The USD/CHF experienced the smallest fall (0.25%), while the only rally of 0.36% was registered versus the Japanese Yen, triggered by the return of risk-on sentiment.
US housing starts declined more than expected in March, while permits for future home construction slipped to a one-year low, indicating some cooling in the housing market in line with signs of a steep slowdown in economic activity in the first quarter. Housing starts plunged 8.8% from a month earlier to a seasonally adjusted annual rate of 1.089 million in March, according to the Commerce Department. At the same time, new applications for building permits, a bellwether for forthcoming construction, dropped 7.7% to 1.086 million, from a revised February rate of 1.177 million. Demand for housing has been robust over the past year, with home prices up in many markets amid a shortage of inventory. Buyers could turn to new homes, which only account for about 10% of the overall housing market, as the supply of existing homes declines.
Economists say the fragile economy, combined with low inflation justifies the Fed's cautious approach to hiking interest rates. The economy has been hit by a strong US Dollar and sluggish global demand, which have weighed on exports. Lower oil prices are also a drag as they have undercut profits of energy firms, prompting them to sharply curb spending on capital projects. First-quarter gross domestic product growth estimates are currently as low as a 0.2% annualized rate. The world's number one economy expanded at a 1.4% rate in the December quarter.
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 Existing Home Sales is the only relevant event
Wednesday is rather quiet in terms of fundamental data to influence the USD/JPY pair today. The event is the US Existing Home Sales, which are released by the National Association of Realtors, and provide an estimated value of housing market conditions. As the housing market is considered to be a sensitive factor to the US economy, it generates some volatility for the USD.USD/JPY: downside risks persist
Even though the US Dollar managed to take advantage of risk appetite and outperform the Japanese Yen on Tuesday, risks of the pair edging lower today persist. First of all, technical indicators retain their bearish signals, bolstering the possibility of the negative outcome; second, the USD/JPY currency pair was unable to reconquer the 109.50 level, which kept the Buck pressured ever since the first rebound from the 18-month low occurred. Nonetheless, the monthly S2 and the weekly PP form a rather strong support cluster at 108.70, where dips are likely to be limited if the bearish momentum prevails.Daily chart
The USD/JPY currency pair appears to be gravitating towards the 200-hour SMA, refusing to continue rebounding since it bounced back from the 18-month low. As a result, another retest of the 18=month low might be under way.
Hourly chart
Bulls remain in control
Bulls also dominate the OANDA market, where 60% of open positions are long, compared to 65% on Tuesday. The sentiment as reported by SAXO Bank remains bullish - 59% of currently open positions are long, compared to 57% on Tuesday.
Spreads (avg, pip) / Trading volume / Volatility
More than a half expect the exchange rate to rise above 114 yen
More than half of the surveyed (57%) now assumes that the US Dollar is to cost more 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 more than a quarter (28%) of the voters. According to the votes collected between March 20 and April 20, the mean forecast for July 20 is 113.14. At the same time, 12% of the surveyed believe the Greenback could cost between 106.50 and 108.00 yen in three months.
Meanwhile, 63% of Dukascopy Community members still think that pair will continue its bearish development. Slightly more than 26% of traders expect the pair to close above the 108.5 level at the end of the present working week, while the average expectation stays just below this level, which is supported both by weekly pivot point and daily S1 support line.
According to megajorko, the USD/JPY is likely to appreciate by the end of the week, as he still expects the pair to reach a round number. "There are no news which could strengthen the yen. However, I think that trend is bearish in a long term", he commented.
At the same time, another trader with the Dukascopy Community under the nickname Pisaklanos believes that the USD/JPY pair might remain relatively unchanged. "It seems the BOJ resigned to the idea of a stronger yen, even besides the "adding stimulus" narrative. No action observed during the week to fend off the appreciation of the yen. My outlook is rather neutral than bearish or bullish", he backed his view.