- The number of orders to sell the American Dollar increased from 61 to 68%
- Market sentiment remains bullish at 73%
- The 55-day SMA and the monthly R1 around 110.50 represent immediate resistance
- Support is at 109.78
- 52% of the survey participants expect the US Dollar to cost more than 114 yen in three months
- Upcoming events: US Philadelphia Fed Manufacturing Index, US Jobless Claims, FOMC Members Dudley and Fischer Speeches
Even though the FOMC Meeting Minutes boosted the US Dollar on Wednesday, it still struggled to post substantial gains against most major peers. A decline in oil prices caused the Greenback to advance the most against commodity-based currencies, namely 1.33% versus the Aussie, 1.05% against the Kiwi and 0.97% against the Loonie. Meanwhile, the USD/JPY appreciated 0.96%, followed by a 0.86% rally against the Euro and 0.83% versus the Swissie. However, the Buck was unable to outperform the British Pound, as the expectations of the UK remaining in Europe caused the Buck to drop 0.93% versus the Sterling.
The minutes of the April Fed meeting, when the US central bank left interest rates on hold in line with economists' expectations, showed that officials believed the US economy could be ready for another interest rates hike in June. Most members of the policy-setting committee's said they looked forward to seeing signs that economic growth was gaining steam in the second quarter and that employment and inflation were firming, the minutes showed. Fed officials said recent economic data made them more confident inflation was climbing toward the 2% target and that they were less concerned about a global economic downturn. However, some policymakers were worried about a slowdown in US economic growth during the first quarter, when gross domestic product increase slowed to a two-year low of 0.5%. Yet others argued that ongoing strong job growth indicated the economy was still on track and the growth data could be flawed. Data since the end of April pointed to an increase in consumer spending and manufacturing output, supporting the view that economic growth was gaining momentum after stalling in the first quarter.
Some policy makers said they were worried financial markets could be roiled by a possible UK exit from the European Union in a vote next month or by China's exchange rate policies.
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.
Philly Fed Manufacturing Index and US Jobless Claims
Today only two data release are likely to influence the USD/JPY pair. First of all, the Philadelphia Fed Manufacturing Index is due, which is a spread index of manufacturing conditions within the Federal Reserve Bank of Philadelphia. This survey, served as an indicator of manufacturing sector trends, is interrelated with the ISM Manufacturing Index and the Index of Industrial Production. It is also used as a forecast of the ISM Index. Second, the Initial Jobless Claims; they are 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 labour market. A larger than expected number indicates weakness in the market, which influences the strength and direction of the US economy.USD/JPY attempts to remain above 110.00
As was first anticipated, hawkish FOMC Meeting Minutes triggered another USD/JPY rally yesterday, which led to the breakout from the falling wedge pattern. Moreover, the pair retook the 110.00 major level, now finding itself stuck between the weekly R1 from the downside and the cluster, represented by the 55-day SMA and the monthly R1, from the upside. Technical indicators are now giving bullish signals, suggesting that another rally is likely to take place. In case the immediate resistance, which is not far from today's opening price, is pierced, the next target will then be the weekly R2 at 110.91.Daily chart
With yesterday's breach of the falling wedge pattern, the USD/JPY currency pair is now poised for more strength. The first main target is the 111.92 level, namely the highest point in the second half of April, with the second one being the March high at 114.56.
Hourly chart
Bulls remain in control
Bulls also dominate the OANDA market, where 61% of open positions are long, two percentage points more from Wednesday. Meanwhile, the sentiment as reported by SAXO Bank remains bullish at 52%, compared to 53% 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 19 and May 19, the mean forecast for August 19 is 111.40. At the same time, 22% of the surveyed believe the Greenback could cost between 115.50 and 117.00 yen in three months.
Nevertheless, Dukascopy Community members are still bullish on the pair, with 66% of respondents having positive view.
This week megajorko, a trader with the Dukascopy Community, remains bullish on the USD/JPY pair. "It was so close to 110 but presently the level is formed as a strong resistance I suppose. I am not sure but I think that during FOMC it will be broken but it will be short lived and there are some signs of a start of a trend down after all," he said, also adding that "the revision of Japanese stimulus program is giving some boost to yen and the only thing that stopped a powerful spike down in the pair is the present USD power."
At the same time, Likerty suggests that the Buck is to weaken against the Japanese Yen by the end of the week. "Interestingly enough, US Dollar might move in opposite directions in regards of its stance against European majors and Yen. The USD/JPY has unfinished business around 107.60's and later - 104.80's," Likerty commented. In his view while the US Dollar is set to go stronger against other major peers and precious metals, it could go weaker against the Yen. "It is a sign of upcoming positioning for June's Brexit risk event," he added.