- 72% of orders placed 100 pips around the spot price are to purchase the Dollar
- US Dollar is strongly overbought—as many as 76% of position open in the SWFX market are long
- Rallies to find resistance at 111.90
- 200-hour SMA is at 109.95
- 52% of the survey participants expect the US Dollar to cost less than 114 yen in three months
- Upcoming events: Japanese Household Spending (Apr), Unemployment Rate (Apr), Industrial Production (Apr)
The Greenback disregarded neutral to weak Friday fundamentals and outperformed all its major counterparts on growing expectations that the date of the rate hike draws near. The smallest gains were recorded against the Canadian Dollar and the British Pound - 0.32%. The other currencies lost between 0.50 and 0.70%.
The US economy slowed in the first quarter although not as sharply as initially thought, amid a surge in spending on home building and a steady increase in inventory investment by businesses. According to the Commerce Department report released on Friday, the broadest measure of the US economic performance, expanded at an 0.8% annual rate between January and March compared to the previous reading of 0.5%. Despite the nation's gross domestic product in the first quarter of the year positive tendency, the indicator remains at its lowest level since the first quarter of 2015. Overall, the US economy has been hurt by a strong dollar and sluggish global demand, which have eroded export growth. However, there are signals that the US economy will rebound in the second quarter, with retail sales, goods exports, industrial production, housing starts and home sales soaring in April.
In the meantime, during the Fed Chair press-conference, Janet Yellen gave a big hint that interest rates could be raised in June or July. Moreover, the Federal Reserve did not see the financial crisis coming, even though there were apparent clues. Yellen's comments renewed the market's conviction that the second rate hike of this cycle is approaching. Treasuries fell, while stocks, in turn, slipped to the lowest levels of the day.
Vatsal Srivastava, director at the Blackwater Consulting, explained why the US Dollar was advancing against the Yen last week. Even though he said that there was nothing fundamentally driving USD/JPY on Monday, one of the key drivers was the falling oil prices, which was actually boosting the Yen, in analyst's opinion, as there was an addition cause for more QQE. Vatsal Srivastava also mentioned 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 summed up.
Japanese household spending contraction to decelerate
While there are no releases concerning the well-being of the United states, later today we are expecting several reports on Japan. The main report is to be on household spending, which is expected to fall only 1.0% after contracting as much as 5.3% a month before. The unemployment rate in Japan is estimated to stay unchanged at 3.2%.USD/JPY bullish until 111.90
The channel USD/JPY is currently trading within is the result of the pair touching 38.2% retracement of the 2011-2015 up-move and the 200- week SMA that create solid support between 106 and 105.50 dollars. Being that last week the pair closed near the lower bound of the pattern, the outlook for this week is positive. Considering the daily technical indicators, the price is highly likely to revisit April low at 111.90 in the next several days.Daily chart
In the lower time frame the pair soared from support created by the resistance line and the 200-hour SMA. However, the current recovery appears to be fragile, as apart from the upper boundary of the emerging channel there is also the April 24 high that is standing in the appreciation's way.
Hourly chart
SWFX traders stay bullish
The US Dollar is strongly overbought—as many as 76% of position open in the SWFX market are long. Nevertheless, for the time being this does not mean a sell-off, since 72% of orders placed 100 pips around the spot price are to purchase the Dollar against the Yen.
OANDA traders are also net long the US Dollar, but to a noticeably smaller extent - 60% of them are bullish. A different scenery is observed with Saxo Bank traders, who seem to be undecided with respect to Dollar's prospects - a half of them is long and a half of them is short.
Spreads (avg, pip) / Trading volume / Volatility
Slightly more than a half expect the exchange rate to fall under 114 yen
Slightly more than a half of the surveyed (52%) 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 more than a quarter (27%) of the voters. According to the votes collected between April 27 and May 27, the mean forecast for August 27 is 110.95. At the same time, 16% of the surveyed believe the Greenback could cost between 115.50 and 117.00 yen in three months.