- The portion of buy orders still takes up 70% of the market
- Bullish market sentiment remains unchanged at 72%
- The 55-day SMA, the monthly PP, the weekly R1 and the down-trend around 112.30 represent immediate resistance
- Support is around 110.30
- 62% of the survey participants expect the US Dollar to cost more than 114 yen in three months
- Upcoming events: US Goods Trade Balance, US Pending Home Sales, US Crude Oil Inventories, FOMC Statement, US Federal Funds Rate, Japanese Household Spending, Tokyo Core CPI, Japanese Retail Sales, Japanese Unemployment Rate
The US Dollar declined against most major currencies on Tuesday, as the Durable and Core Durable Goods Orders data turned out to be worse than anticipated. The Greenback dropped the most against the Sterling, down 0.68%, whereas other significant losses of 0.64% and 0.58% were seen against commodity currencies, namely the Kiwi and the Loonie, respectively. Higher oil prices also triggered a USD 0.42% slump versus the Australian Dollar. At the same time, the EUR/USD edged 0.24% higher, followed by a 0.15% fall in the USD/CHF. The only gain of 0.10% was registered against the Japanese Yen, amid some return of risk-appetite.
Orders to US factories for long-lasting manufactured goods increased less than expected in March, while a key category that tracks business investment plans remained weak for a second month. The Commerce Department reported orders for durable goods, items meant to last three years or more, climbed 0.8% last month following a downwardly revised 3.1% decrease in February. Non-defence capital goods orders excluding aircraft, a closely watched proxy for business spending plans, were unchanged after a downwardly revised 2.7% decline in the prior month. Manufacturing, which makes up 12% of the US economy, is faltering due to the lingering effects of the Dollar's past strength and weak overseas demand. Prospects for 2016 remain uncertain. Some economists believe that factories should see an increase in demand since the Greenback has stopped rising versus other currencies. The global economy also seems to have stabilized after a shaky start to the year. However, other analysts are uncertain about how long it might take for manufacturing to rebound.
Meanwhile, the mood among American shoppers surprisingly fell in April. The Conference Board's measure dropped to 94.2 in April from a downwardly revised 96.1 in March. The present-situation index advanced to 116.4 in April from 114.9 a month earlier, while the expectations index declined to 79.3 from 83.6.
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 Federal Funds Rate, US Pending Home Sales and Tokyo Core CPI
Concerning the US economy, one of the important events is the Pending Home Sales data release. It is 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. However, a more important even is the Federal Funds Rate Decision. With a pre-set regularity, a nation's Central Bank has an economic policy meeting, in which board members took different measures, the most relevant one, being the interest rate that it will charge on loans and advances to commercial banks. In the US, the Board of Governors of the Fed meets at intervals of five to eight weeks, in which they announce their latest decisions. A rate hike tends to boost the local currency, as it is understood as a sign of a healthy inflation. A rate cut, on the other hand, is seen as a sign of economic and inflationary woes and, therefore, tends to weaken the local currency. If rates remain unchanged, attention turns to the tone of the FOMC statement, and whether the tone is hawkish or dovish over future developments of inflation. From the Japanese side, attention should be paid to the Tokyo Core CPI, which is released by the Statistics Bureau, which is a measure of price movements obtained by comparison of the retail prices of a representative shopping basket of goods and services, excluding fresh food. The index captures inflation in Tokyo, the purchase power of JPY is dragged down by inflation.USD/JPY muted ahead of Fed rate decision
Demand in face of the monthly S1 and the weekly PP around 110.50 was sufficient to prevent the USD/JPY currency pair from falling on Tuesday. As a result, the exchange rate remained on top of the 111.00 psychological level, but risks of the immediate support getting pierced today are higher. Depending on the FOMC meeting the US Dollar could fall down towards the 109.00 major level over the day. On the other hand, the upper border is represented by the down-trend at 112.34, bolstered by the 55-day SMA, the monthly PP and the Bollinger band. However, according to technical indicators, another day of relatively flat trade between 110.50 and 112.00 is possible.Daily chart
The USD/JPY currency pair remained relatively unchanged on Tuesday, unable to negate Monday's losses and reach a higher high in order to preserve the bullish trend. Nevertheless, the pair is now only 100 pips away from reconfirming the down-trend.
Hourly chart
Bulls remain in control
Bulls also dominate the OANDA market, where 64% of open positions are long, compared to 60% on Tuesday. The sentiment as reported by SAXO Bank barely remains bullish - 54% of currently open positions are long, unchanged since 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 (62%) 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 27 and April 27, the mean forecast for July 27 is 113.42. At the same time, 20% of the surveyed believe the Greenback could cost between 115.50 and 117.00 yen in three months.
At the same time, for the third straight week, around 80% of respondents are having bullish view on the pair.
Meanwhile, Trendmaster, a trader with the Dukascopy Community, is bullish on the USD/JPY currency pair. "The USD/JPY trend is uncertain as both central bank from US and Japan are meeting this week. The BoJ is widely expected to cut its policy rate by 20bp to -0.3% and scale up its qualitative easing measures." He also commented that from the technical and trend view, despite the negative rate, he expects market sentiment to keep the pair bearish through the week.
On the other side of the barricade, Jignesh believes that the USD/JPY pair might end up with a significant loss. "Last week's price action on the back of an announcement from the BoJ showing some renewed commitment may have traders looking at this pair with the view that the longer term up trend may have continued. Dips should be supported in this pair as it gets bought up further this week", he commented.