- Buy orders now account for the majority of the market, namely 51%
- 60% of all positions are long, compared to 52% yesterday
- Nearest resistance rests around 123.79, represented by the weekly PP
- There still seems to be relatively strong demand at 122.53
- 21% of traders expect the Greenback to cost between 126 and 127.5 yen in three months
- Upcoming events today: US CPI and Core CPI, US Unemployment Claims, US Current Account and Philadelphia Fed Manufacturing Index
The Greenback sustained serious losses on Wednesday. The US currency declined the most against the Sterling and the Swiss Franc, losing 1.16% and 1.09%, respectively. Against the Loonie and the Euro, the Buck had more resilience, as it lost 0.54% versus the Loonie and 0.79% against the Euro. However, the American Dollar remained relatively unchanged against the Yen (0.06%), the Aussie (0.03%) and the Kiwi (0.02%).
Referring to an improving economy, the Fed signalled that it is on track to hike all-time low interest rates as early as September. Yet, the rates are likely to rise more gradually than it was previously thought. While the economy heads a 2% growth this year, concerns remain over the recovery of the nation's labour market, low labour force participation rate and high level of part-time employment. Thus, Fed Chairwoman Janet Yellen reiterated that she looked for "more decisive evidence" that the labour market was healing and wages would grow beyond the current sluggish pace.
The Fed also downgraded its US economy's growth outlook, stating that gross domestic product of the world's number one economy is poised to expand between 1.8% and 2.0% in 2015, compared with the central bank's March forecast of between 2.3% and 2.7%. In addition to that, policy makers expect the unemployment rate to be slightly higher at the end of the year at 5.2% to 5.3% compared with the previous estimate. With regards to inflation, the central bank admitted that it remains low and projected a gradual rise to its 2% over the medium term. Despite a slightly gloomier forecasts, the Fed remains on track to lift interest rates once or twice over its four remaining monetary policy meetings this year.
Sean Yokota, head of Asia Strategy at SEB 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. Overall, Yokota reckons that 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 CPI and Philly Fed Manufacturing Index
Concerning the Japanese economy, we should expect the BoJ's Monetary Policy Statement on Friday, but today we should focus on the US CPI and Philadelphia Manufacturing Index. The US CPI is an important data release, as the consumer prices account for the majority of overall inflation. The CPI is expected to rise by 0.4 percentage points, up to 0.5%, which should give the US Dollar back some strength after yesterday's dovish Fed statement. Moreover, the Philadelphia Fed Manufacturing Index is also expected to improve. It is a leading indicator of economic health, therefore, it should have high impact on the Greenback. Together with the CPI data, the Manufacturing Index should influence the US Dollar to regain some value.
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 bounces back after unsuccessful attempts to overcome 124 major level
On Wednesday, the US Dollar did appreciate versus the Yen, but not as much as anticipated. The Buck almost managed to reach the 124.50 area, but was pushed back under the resistance cluster around 124. As a result, the USD/JPY added only ten pips, but now with the risks of plunging in the upcoming days. Several attempts of breaching the mentioned resistance cluster were in vain. Thus, the Greenback is likely to fall back, with the nearest support located at 122.53, represented by the monthly PP and lower Bollinger band, whereas technical studies are giving bearish signs.
Daily chart
Even though the US Dollar did rise above the 124 level, it was still pushed back. As a result, the USD/JPY crossed through the 200-hour SMA for the second time and fell back to its opening price. A small rebound after that accounted for all the gains on Wednesday. However, the Greenback keeps losing ground today, falling under the 123 major level, but with its hopes up to regain the bullish momentum in the second half of the day.
Hourly chart
Bulls regain confidence in the Buck
Today 60% of all positions are long, compared to 52% yesterday, while the buy orders now account for the majority of the market, namely 51%.
OANDA and SAXO clients retain their bullish perspectives towards the Buck. The share of longs at OANDA dropped from 56% to 54%, while the SAXO Bank's sentiment worsened, dropping four percentage points to 64%.
Spreads (avg, pip) / Trading volume / Volatility
21% of traders expect the Greenback to cost between 126 and 127.5 yen in three months
According to the survey conducted between May 18 and June 18, 70% of the participants expect the US Dollar to cost more than 123 yen in three months. However, the mean forecast for September 18 is 124.82. Meanwhile, the 126.00-127.50 price interval received the largest amount votes, namely 21%.
According to the survey conducted between May 10 and June 10, 60% of the participants expect the US Dollar to cost more than 123 yen in three months. However, the mean forecast for September 10 is 122.87. Meanwhile, the 126.00-127.50 price interval received the largest amount votes, namely 19%.
The end of the current week is forecasted to bring some important fundamental data, namely the official monetary policy statement by the Policy Board of the Bank of Japan on Friday, which may have a considerable impact on pair's perspectives. From the American side, traders could pay additional attention, to Fed's interest rate decision on Wednesday and release of the consumer price index by the end of the week. In overall the traders are pretty much undecided on pair's future development, as trader's votes divided almost equally.
A trader with a bullish perspective towards the USD/JPY, WallStreet6, says that "with the Fed meeting up ahead and positive data coming from the US economy, I think that we will hear some statement on earlier than expected rate hike and the USD should strengthen further." However, Rokasltu, another Dukascopy community member, expects the US Dollar to decline versus the Yen. "In my opinion, USD/JPY might go down, due to quite good latest economic results from Japan".
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