- There are a lot more orders to buy the Greenback than there are to sell it: 64% versus 36%
- There are almost as many as three times more bulls in the SWFX market than there are bears
- Current target for long is the April 24 high at 111.90
- Support is provided by the 200-hour SMA at 110.10
- 52% of the survey participants expect the US Dollar to cost less than 114 yen in three months
- Upcoming events: US Chicago PMI (May), CB Consumer Confidence (May), Personal Spending (Apr), Core PCE Price Index (Apr), Japanese Capital Spending
Just like a majority of the other major currencies, the US Dollar remained mostly unchanged yesterday, with gains and losses limited by a quarter of a per cent. The only outlier was USD/JPY, where the Greenback surged 0.73% at the expense of a falling Yen.
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.
Focus shifts to US data
According to the expectations of the market, Tuesday is likely to prove bullish for the US Dollar, being that CB consumer confidence is to strengthen from 94.2 to 96.1. The other reports, such as personal spending and core PCE price index, are also estimated to improve compared to the previous month releases.USD/JPY to bounce off of 112 yen
Although the daily technical indicators are mostly bullish, short-term long positions are becoming risky, as the currency pair is approaching the upper bound of the recently established ascending channel. The present rally is expected to end near the level of 112 yen, before the pair reaches the 100-day simple moving average at 112.40. If this is the case, the ensuing downward correction should then be limited by the lower bound of the pattern (currently at 110 yen), presumably by 110.50.Daily chart
Yesterday, the pair turned out to be able to penetrate 111 yen, meaning there is a good possibility of a test of the April 24 high at 111.90.
Hourly chart
SWFX traders stay bullish
There are almost as many as three times more bulls in the SWFX market than there are bears, which does not bode well for a prolonged US Dollar recovery. Nevertheless, right now there are a lot more orders to buy the Greenback (64%) than there are to sell it (36%).
OANDA clients have a similar attitude towards USD/JPY, since 61% of them are currently holding bullish positions. In contrast, there is no single mind among the Saxo Bank traders, 51% of whom are long and 49% of whom are short the US Dollar.
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.