- Buy commands now account for 69% of the market
- Bullish market sentiment returned to its Wednesday's level of 60% (previously 58%)
- Closest resistance is the Bollinger band at 121.11
- From below the price is supported by the weekly R2 at 120.89
- 61% of traders see USD/JPY above 120 yen in three months
- Upcoming events today: US CPI and Core CPI, Fed Chair Yellen Speech, BoJ Governor Kuroda Speech
Meanwhile, manufacturing activity across the US unexpectedly declined to the lowest level in 16 months in May. Yet the US factory activity is still some way ahead of the rest of the world. Markit's manufacturing PMI dropped to 53.9 in the reported month, compared with 54.1 recorded in the preceding month. A separate report showed sales of previously owned homes dropped in April. Existing home sales fell 3.3% last month from March to a seasonally adjusted annual rate of 5.04 million. The National Association of Realtors also reported that the median price of an existing home climbed to $219,400 in April, up 8.9% from the prior year.
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 Inflation Data and BoJ Governor Kuroda Speech
The US CPI in the US is expected to grow at a slower rate, compared to the previous month, which should pressure down the US Dollar, giving the Yen more space to advance. Later today on the ECB Forum on Central Banking Haruhiko Kuroda will discuss the inflation, unemployment in the UK, as well as the monetary policy of the BoJ, giving his prospects on each of the topics. A more hawkish speech will boost the Yen, allowing the USD/JPY to fall again today.
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 falls beneath 121
On Thursday, the US Dollar suffered losses, amid worse-than-expected fundamentals. However, the Bollinger band at 121.04 managed to stop the USD/JPY pair from falling too deep. Further weakness is expected today, and the Greenback is not just likely to fall under 121 area again, but even pierce the two closest supports, while trade should close around 120.50. Meanwhile, technical studies retain mixed signals, unable to confirm the scenario.
Daily chart
On the hourly chart we can see that the Greenback's weekly rally ended yesterday, as the USD/JPY pair began to slide down. The 121 area has already been crossed to the downside and further weakness is expected today. The target is the 200-hour SMA, although the US Dollar is unlikely to fall that far today.
Hourly chart
Market sentiment remains bullish
Bullish market sentiment returned to its Wednesday's level of 60% (previously 58%). The number of buy orders added four percentage points. The commands now account for 69% of the market.
The market participants at other brokers appear to be less bullish on USD/JPY. Right now OANDA's long and short positions are in a perfect equilibrium. SAXO Bank traders, however, are more optimistic towards the Greenback, being that 63% 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, 61% 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 16% them. Meanwhile, the average of the three-month forecasts collected between Apr 22 and May 22 is 120.58.
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.