The American Dollar managed to post gains across the board, with the only exception being the NZD/USD currency pair yesterday. With risk-on sentiment returning to the markets, the largest gain of 0.78% was registered against the Japanese Yen, followed by a 0.61% rally against the Euro. Meanwhile, the Cable edged only 0.25% higher, while the USD/CHF remained relatively unchanged, inching higher only 0.01%. The Buck also struggled to outperform commodity currencies, being able to surge only 0.09% versus the Loonie and 0.08% against the Aussie. At the same time, the NZD/USD pair slid 0.07%.
On Tuesday the head of the Federal Reserve, Janet Yellen, stated that there is ‘considerable uncertainty' in US growth outlook. She also brought to attention the fact that some data suggests the US economy keeps growing, but some events, like the upcoming ‘Brexit' referendum, bring the mentioned uncertainty. According to Yellen, the US economy is expected to reach full employment and its 2% inflation target within the next few years. Growing household incomes, improvements in the housing industry, along with low mortgage rates, should trigger improvements in the labour market to appear and, therefore, in the economy overall. Furthermore, Janet Yellen touched the question of the interest rates, explaining that the FOMC has been hesitant to do so due to periodically-disappointing readings in the labour market, as well as inflation remaining below its key target. Also, she assured that some weakness in the labour market should not be considered as a game changer in the Fed's monetary policy decision, as there were strong readings present too.
Finally, she warned about foreign risks, such as the slowdown in global economy, lower inflation and interest rates may cause investor risk appetite to arise. Amid these issues and concerns, the US monetary policy is not heading in only one direction, as adjustments must be made.
Vatsal Srivastava, director at the Blackwater Consulting, explained why the US Dollar advanced against the Yen last week. He said there was nothing fundamentally driving USD/JPY on Monday, but 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.
Yellen's testimony remains the main event
Federal Reserve governor Janet Yellen's Testimony is due for the second day today. As head of the central bank, which controls short-term interest rates, she has more influence over the nation's currency value than any other person. More insight concerning future interest rate hikes and the overall economic condition in the US is expected. Another event is the US Housing Price Index. It is released by the Federal Housing Finance Agency, which provides an estimated value of housing market conditions. It is an important indicator as the housing market is considered as a sensitive factor to the US economy.USD/JPY traces back to 104.00
The US Dollar managed to appreciate against the Japanese Yen on Tuesday, with risk-on sentiment returning to the markets. The weekly PP succeeded in limiting yesterday's gains and is expected to cause the USD/JPY to weaken today. The bottom target is the monthly S2 at 103.34, but the 104.00 major level might be difficult to pierce as well. According to technical studies, the pair is definitely to decline, as signals are distinctly bearish. On the other hand, Fed's Yellen could provide the Greenback with a boost, causing the weekly PP to give in and, thus, the Buck to retake the 105.00 psychological level.
Today 70% of traders are long the American Dollar, compared to 74% on Tuesday. The number of orders to purchase the US currency edged up from 56 to 66% over the day.
There is a small but nevertheless bullish bias among OANDA and Saxo Bank traders as well. In case of OANDA, 69% of positions opened by its clients are long. Similarly, 60% of positions opened by Saxo Bank traders are long as well, compared to 57% on Tuesday.
Most SWFX traders are long USD/JPY
Spreads (avg, pip) / Trading volume / Volatility
Slightly more than a half expect the exchange rate to rise above 109.50 yen