- The number of purchase orders inched up from 46 to 49%
- 70% of traders hold long positions
- The down-trend at 109.30 represents immediate resistance
- Support is around 108.55
- 52% of the survey participants expect the US Dollar to cost more than 114 yen in three months
- Upcoming events: US Building Permits, US CPI and Core CPI, US Housing Starts, US Capacity Utilization Rate, US Industrial Production, Japanese Preliminary GDP
The Greenback began the week with rather poor performance, as losses were detected against the majority of other peers, with exception against the Yen and the Swiss Franc, against which the Buck lost 0.37% and 0.22%, respectively. The US Dollar declined the most against commodity-based currencies, namely 0.35% versus the Loonie, 0.28% versus the Aussie and 0.28% against the Kiwi, due to an increase in oil prices. At the same time, the Cable edged 0.27% lower, while the EUR/USD surged only 0.11%.
Official data showed that the New York Federal Reserve's index of manufacturing conditions contracted for the first time in three months in May, as new orders and shipments turned negative. The general business conditions index fell to -9 in May, contrary to analysts' prediction of a modest pullback to 6.5 points from April's 9.56 points. The previous reading had been the indicator's highest since January 2015. The figures suggest that factories in the state continue to struggle despite growth in March and April. Factory output nationwide has been sluggish in the past year as a weak global economy has lowered exports and US businesses are spending less on equipment and machinery. The new orders and shipments indexes also pointed to a decline in both orders and shipments. A measure of new orders fell to –5.5, from 11.1 the previous month. Also, a gauge of shipments slipped into negative territory, falling to minus 1.9 from 10.2. Moreover, employment levels appeared to be little changed, while the average workweek index pointed to a decline in hours worked.
Thus, the so-called Empire State index suggests that the recovery from the US manufacturing recession will be sluggish at best. The average for the second quarter thus far, at 0.27 points, is slightly better than the -11.8 points logged in the first 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 CPI and Building Permits
There is a number of US data scheduled for today, such as the US CPI and Core CPI. The CPI is released by the US Bureau of Labor Statistics and 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, however, excludes the Food & Energy sectors. Another important event is the US Building Permits. The US Building Permits, released by the US Census Bureau, show the number of permits for new construction projects. It implies the movement of corporate investments (US economic development). It also tends to cause some volatility to the USD.USD/JPY gravitates towards 109.00
Even though the US Dollar edged higher against the Yen on Monday and even erased Friday's losses, the resistance trend-line of the falling wedge was not put to the test. Nevertheless, price opened closer to the down-trend today, which is now providing immediate resistance. Technically, we should see another small decline, with the USD/JPY pair anchored to the 109.00 mark, before the Greenback breaks out of the pattern to the upside. A lot will depend on tomorrow's FOMC Meeting Minutes, as a dovish statement would only prolong the pattern. Today's possible decline is to be limited by the 20-day SMA, the weekly and the monthly PPs around 108.60.Daily chart
The USD/JPY kept consolidating for exactly a week now, with a phantom resistance located around 109.40, which could keep the pair from appreciating further if the resistance trend-line is breached. A breakout could occur, but triggered by a substantial fundamental event.
Hourly chart
Bulls remain in control
Bulls also dominate the OANDA market, where 62% of open positions are long, one percentage point more from Monday. Meanwhile, the sentiment as reported by SAXO Bank remains bullish at 56%, unchanged since yesterday.
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 (52%) 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 (27%) of the voters. According to the votes collected between April 17 and May 17, the mean forecast for August 17 is 111.51. At the same time, 22% of the surveyed believe the Greenback could cost between 115.50 and 117.00 yen in three months.