- Share of purchase orders now takes up three quarters of the market (75%)
- Bullish market sentiment returned to last Friday's level of 60%
- Closest resistance is the monthly R1 at 120.71
- From below the price is supported by the weekly R1 at 120.12
- Almost two thirds see USD/JPY above 120 yen in three months
- Upcoming events today: US Crude Oil Inventories, US FOMC Meeting Minutes
An improving labour market and mortgage costs close to multiyear lows have been boosting residential construction, a sign that the weakness in early 2015 was temporary and due to harsh winter weather. The strength in housing comes in stark contrast with weak consumption, business spending and manufacturing, which has forced economists to revise downwards their second-quarter growth estimates and raise doubts that the Federal Reserve will raise interest rates before the end of 2015. The official data last month showed the US GDP grew at a 0.2% in the March quarter. Yet, weak March trade and inventories data suggested the economy actually contracted. The government will release GDP revisions next week.
Sean Yokota, head of Asia Strategy at SEB, said that "if you look at Japan's public debt, which is about 243% of GDP, which is also one of the largest in the world." The economist comments that the BoJ needs to get the debt down before all the baby boomers retire, so they need to go through some fiscal consolidation, whether through tax hikes or through spending cuts. He also mentioned that such measures put Japan into recession, but he thinks that it also gave a bit of confidence to people; that this time when you increase the taxes, it does hit you short-term, but you can come out of the recession. Moreover, the Japanese economy is still doing relatively O.K. and the equity markets are still pretty high.
Craig Erlam, Senior Market Analyst at OANDA, commenting on the prospects of the Fed raising interest rates this year, said that there is no real difference between the Fed raising rates either in June or in September. In his opinion September just seems more likely, because it gives the Fed more time to prepare for the hike. Craig also does not see the immediate necessity for a rate hike in September, but thinks that "there is just a number of policymakers who want to test the water with the first hike, see how the markets react, how economy holds up."
US FOMC Meeting Minutes
The Japanese Preliminary GDP data has already been released and showed improvements over the first quarter. However, later today the Fed is to make a statement about whether it is going to raise interest rates or leave them unchanged. Most economists expect a hike in September rather than June. The Meeting Minutes could reveal more worries and good weigh on the US Dollar.
Marcel Thieliant, economist from Capital Economics, forecasts USD/JPY to be at 130.00 by the end of the second quarter. The analyst commented that he expects the BoJ to step up the pace of easing at the end of this month. "This is obviously not what other economists expect, if that happens, we will probably see a strong drop in the Yen against the Dollar and against other major currencies," Thieliant said.
USD/JPY on the way to March high
The US Dollar overperformed on Tuesday, as the initial resistance level was easily breached. Moreover, during the trading session USD/JPY currency pair was able to reach April 9 high, before stabilising at 120.64. Today the Greenback might even close trade around the highest levels in March. The nearest significant obstacle is the 121 area, which is likely to give in, as technical studies suggest further rally from short to long terms.
Daily chart
The US Dollar keeps appreciating against the Yen. The May high was easily overcome yesterday, and the Greenback keeps edging higher. However, the 121 level is to provide resistance, but once that area is overcome, we might see a hike towards the December 2014 high at 121.84.
Hourly chart
Bulls keep losing ground
Bullish market sentiment returned to last Friday's level of 60%, while the share of purchase orders now takes up three quarters of the market (75%).
The market participants at other brokers appear to be less bullish on USD/JPY. Right now 56% of OANDA clients are holding long positions. SAXO Bank traders, however, are more optimistic towards the Greenback, being that 65% of their positions are long.
Spreads (avg, pip) / Trading volume / Volatility
Almost two thirds see USD/JPY above 120 yen in three months
The surveyed traders are mostly bullish on the Dollar. According to the latest data, 63% of them expect the US currency to cost more than 120 yen after three months. Nevertheless, the largest concentration of answers lies between 123.00 and 124.50, namely one fifth of them (20%). Meanwhile, the average of the three-month forecasts collected between Apr 20 and May 19 is 120.85.
The present trading week experienced significant changes in market preferences, as now long votes take almost 75% from all, underlying a slight improvement.
Piter44, a trader with a bullish outlook towards the USD/JPY, says that the pair is in a consolidation stage, therefore, he expects bullish movement. However, he also warns that the market may trap shorts below latest lows of 115. A community member with a bearish outlook, Jignesh, explains that the USD/JPY pair has been held up by a major support level at 118.91 and that this level will be retested this week. Jignesh also suggests to be wary of the equity indexes, such as the S&P 500, which has been struggling at highs.