- Pending orders are equally divided between the buy and the sell ones
- Long positions take up 52% of the market
- The nearest resistance is around 114.00, namely the monthly S2 and the down-trend
- Major demand area is seen circa 113.15 yen
- 53% of the survey participants expect the US Dollar to cost more than 120 yen in three months
- Upcoming events: US Jobless Claims, Fed Chair Yellen's Testimony, US Retail and Core Retail Sales, US Import Prices, US Preliminary UoM Consumer Sentiment
After Yellen's testimony on Wednesday, the US currency weakened against most major peers, only managing to noticeably outperform the Loonie. The USD/CAD edged 0.43% higher, while the USD/CHF and EUR/USD both remained relatively unchanged, adding 0.09% and losing 0.01%, respectively. The broadly stronger Yen posted 1.53% gain against the Greenback yesterday, while other commodity currencies also strengthened against the Buck. The US currency dropped 0.75 against the kiwi and 0.37% against the Loonie, while the Cable climbed 0.36% higher.
While addressing Congress, Fed Chair Janet Yellen said that the central bank is unlikely to reverse its plan to hike interest rates further this year. Yellen stressed that even after the December increase, the stance of monetary policy remains accommodative. The actual path of the federal funds rate will depend on incoming economic data, and policy makers regularly reassess what level of the federal funds rate is consistent with reaching and maintaining maximum employment and 2% inflation.
Yellen welcomed the progress the US economy made toward the central bank's objective of maximum employment. However, Yellen highlighted that while labour market conditions improved substantially, there was still room for further sustainable improvement. With regards to inflation, the Fed Chair said even though inflation is expected to remain low in the near term, partly due to further declines in energy prices, the FOMC expects that inflation will climb to its 2% objective over the medium term. However, financial conditions in the US have recently become less supportive of growth. "These developments, if they prove persistent, could weigh on the outlook for economic activity and the labour market, although declines in longer-term interest rates and oil prices provide some offset. Foreign economic developments, in particular, pose risks to US economic growth.
Vatsal Srivastava, director at the Blackwater Consulting, explains why the US Dollar is a advancing against the Yen this week. Even though he says that there was nothing fundamentally driving USD/JPY on Monday, one of the key drivers is the falling oil prices, which is actually boosting the Yen, in his opinion, as there is an addition cause for more QQE. Vatsal Srivastava also mentions 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 added.
Janet Yellen testifies in front of the Senate Banking Committee
There is a bank holiday in Japan today, therefore all attention will be paid to the US fundamental data, such as the Jobless Claims. Although the number of people applying for unemployment benefits is expected to increase, this particular event tends to have a mild reaction on the market prices. The most important event is Yellen's testimony: round 2. Today she is to testify before the Senate Banking Committee.USD/JPY falls on Fed rate hike delay speculation
The US Dollar sustained a rather heavy loss against the Japanese Yen yesterday, finding support only closer to the third target level. The Yen keeps strengthening and is expected to outperform the Buck for the fourth consecutive day today. The Bollinger band and the weekly S2 provide immediate support circa 113.15, but a drop deeper down, namely towards the monthly S3 at 111.78, is more probable. However, if bulls do manage to push the USD/JPY higher, strong supply is likely to limit the gains around the major level of 114.00.Daily chart
As was expected, the Greenback bounced back after edging closer to the channel's resistance line on the hourly chart and made its way to the lower border. However, volatility extended even lower beyond the border today, suggesting that a sharper sell-off could occur once the support line is fully breached.
Hourly chart
SWFX sentiment stays bearish; elsewhere sentiment is bullish
Traders at OANDA and Saxo Bank have a diametrically opposite view of the pair's future. Clients of both brokers are mostly bullish. Canadian-based foreign exchange company reports that 63% of open positions are long (previously 66%), and the Danish bank reports that 56% of its clients' positions are long, compared to 58% previously.
Spreads (avg, pip) / Trading volume / Volatility
More than a half expect the exchange rate to rise above 120 yen
The largest half of the survey participants (53%) expect the US Dollar to cost more than 120.00 yen in three months. The most popular choice is the 120.00-121.50 price interval, selected by 18% of the voters; however, according to the votes collected between Jan 11 and Feb 11, the mean forecast for May 11 is 119.23. At the same time, 12% of the surveyed believe the Greenback could fall either in the 114.00-115.50 or the 121.50-123.00 price interval after a three month period.
Over the week market sentiment improved for the benefit of USD/JPY's bears. At the same time, a fragile majority (52%) of all participants in the quiz see the Buck rebounding in the period of February 5-12.
According to Likerty, "USD/JPY wants to test 119.40's before continuing its bearishness." He also mentioned that the "inability to hold 116.80's opens 116.1x, after which bullishness will have its chance again."
Babanu, a trader of the Dukascopy Community, believes that during the last day of the previous week "we had a steep drop of this pair, and a decline is most likely to continue due to the lack of ability from the BoJ to weaken the Yen and recent weakness in the US Dollar."