- Pending orders are equally divided between buy and sell ones
- 52% of all open positions are long
- The nearest significant resistance is around 110.10
- The 109.22 area is still a significant support
- Upcoming events: US Initial Jobless Claims, US Import Prices, Philadelphia Fed Manufacturing Index, Empire State Manufacturing Index, US Capacity Utilization Rate, US Industrial Production
As markets expected, the Federal Reserve raised its interest rates at the end of its meeting on Wednesday, adding that it would start cutting its Treasury bonds and other securities this year amid solid economic growth and strong employment trends. Despite the release of weak retail sales and inflation figures earlier in the day, policymakers voted to lift its benchmark lending rate to a target range of 1.00-1.25% and predicted one more rate hike this year. The Bank said the economy remained on a steady growth path and continued generating new jobs.
Moreover, policymakers noted that the most recent slowdown in inflation was driven by transitory factors. The Fed also said that it would soon start reducing its $4.2T portfolio of Treasury bonds and other securities. The Fed Chair said that the Bank would start cutting its Treasury holdings by $6B per month and increase the size of cuts by $6B every three months until they hit $30B per month. The Bank's mortgage-backed securities would be a subject to a $4B monthly cap that would continue rising by $4B on a three-month basis until it reaches $20B per month.
A number of US fundamentals are due
Later today second-class data is due from the US, such as the Import Price Index, which informs the changes in the prices of imported products into the US. The higher the cost of imported goods, the stronger the effect they will have on inflation, redunding in a higher probability of a rate rise. Further comes the Capacity Utilization Rate. It is the percentage of the US production capacity, which is actually used over short-time period. It is indicative of overall growth and demand in the US economy. A high capacity utilization stimulates inflationary pressures. Then comes the Industrial Production, which shows the volume of production of US industries, such as factories and manufacturing. Up-trend is regarded as inflationary, which may anticipate interest rates to rise. Finally, the Empire State and Philadelphia Manufacturing Indexes. The Empire State one gauges business conditions for New York manufacturers, while the Philly one serves as an indicator of manufacturing sector trends and is interrelated with the ISM Manufacturing Index and the Index of Industrial Production. It is also used as a forecast of the ISM Index.
USD/JPY subject to more weakness
As was anticipated, the retest of the six-week down-trend caused the Buck to decline against the Yen yesterday, as poor US fundamentals and political ‘issues' overshadowed the Fed's hawkish tone. As a result, the key support, namely the monthly S1 at 109.22, was briefly pierced, but the exchange rate quickly recovered back towards 109.50. The USD/JPY pair still has a number of strong resistances in close proximity, which are all likely to contribute to another leg down. Moreover, technical indicators keep suggesting the bearish momentum is to prevail today, bolstering the possibility of the negative outcome. Furthermore, with the breach of the key support, the given pair is now exposed to falling under the 109.00 mark, with the next solid support being only the 108.00 psychological level..Hourly chart
On the daily chart the USD/JPY currency pair is still being pressured by the six-week down-trend, while the monthly S1 keeps holding the Buck afloat. The pair is nearing the intersection of these levels, meaning a breakout in either direction is about to occur. Contrary to the hourly chart, the daily one suggests the pair is likely to strengthen, as the RSI is nearing its lower boundary.
Daily chart
Traders' sentiment turned neutral today, with 52% of all open positions being long and the other 48% - short. Meanwhile, there are 50% of all pending orders set to buy or sell the Greenback.
At the moment, 63% of OANDA clients are long the US Dollar against the Yen, while the remaining 37% are short. In addition, Saxo Bank clients' sentiment slightly worsened over the day, as 62% of their open positions are now long.
Spreads (avg, pip) / Trading volume / Volatility
Traders are becoming increasingly bullish on the Dollar
According to the poll that gathered forecasts between May 15 and June 15, traders expect the US Dollar to appreciate to 112.56 yen in three months' time, while the forecast for March 31 was 117.66 yen. It is also worth noticing that 62% of all forecasts fall above 111 yen, which is above the current spot price. The majority of people who voted expect the US Dollar to cost somewhere between 115.50-117.00 yen in three months, with 19% of survey participants choosing this trading range. Furthermore, the 108.00-109.50 and the 112.50-114.00 ranges were the second most popular ones, with 14% of the voters choosing each of them.