- The number of purchase orders increased from 69 to 77%
- Bullish market sentiment returned to its Thursday's level of 58%
- Closest resistance is the cluster at 121.80, represented by the Bollinger band and Dec 2014 high
- From below the price is supported by the weekly PP at 120.83
- 59% of traders see USD/JPY above 120 yen in three months
- Upcoming events today: FOMC Member Fischer Speech
In the meantime, Fed Chair Janet Yellen said the US central bank remained on track to hike interest rates this year, but will do so steadily, adding that she expected the world's number one economy to recover after a surprisingly soft first quarter. Yet, she highlighted once again that the move continues to be dependent on the health of the job market and pace of inflation growth. Even though, the US economy is set to rebound, it faces a number of headwinds including disappointing wage growth and high number of people who seek full-time employment. Yellen said that "it will be several years" before the Fed's benchmark rate is back to normal, which is close to 4% in an economy that is performing strongly. Most economists continue to expect the Fed to raise the fed funds rate in September, which is consistent with Fed policymakers' median forecast two months ago.
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."
FOMC Member Fischer Speech
There is a bank holiday in the US today, but the Japanese SPPI, is expected to show significantly worse figures. The only important US event is the FOMC Member Fischer's Speech, but it is unlikely that anything new will be heard after Yellen's speech on Friday. As the situation remains unchanged, the Yen is likely to be pressured by the Greenback.
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 closing in on Dec 2014 high
The USD/JPY maintains strong uptrend, as the pair gained 50 more pips last Friday. During the trading session, the US Dollar did edge down against the Yen, breaching the immediate support level, but the exchange rate still closed above the Bollinger band at 121.54. Although technical studies retain mixed signals, today we expect the Greenback to rise again. The Bollinger band along with the Dec 2014 high provide solid resistance around 121.80, which should limit any substantial gains.
Daily chart
Even though the USD/JPY experienced an almost two-day setback (since Wednesday), the CPI data on Friday provided the strength for the US Dollar to regain momentum. The Greenback advanced dramatically and extended the gains up till today. As the pair edged closer to the Dec 2014 high at 121.84, a correction begun, but is not expected to last for long.
Hourly chart
Market sentiment remains bullish
Bullish market sentiment returned to its Thursday's level of 58%. Meanwhile, the number of purchase orders increased, from 69 to 77%.
The market participants at other brokers appear to be less bullish on USD/JPY. Right now 52% of OANDA's traders are long the Buck. SAXO Bank traders, however, are more optimistic towards the Greenback, being that 63% of their positions are still 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, 59% 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 18% them. Meanwhile, the average of the three-month forecasts collected between Apr 25 and May 25 is 120.39.