- Only 52% of commands are to acquire the Greenback
- The portion of longs dropped from 67 to 57%
- 19% of traders expect the US Dollar to cost between 123.00 and 124.50 yen in three months
- The closest support lies at 119.91, namely the 55-day SMA, while the nearest resistance is located around 120.33, represented by the Bollinger band
- Upcoming events: Japanese Monetary Base, US MBA Mortgage Applications, US ADP Employment Change, Fed Chair Yellen Speech, US Crude Oil Inventories
The US trade deficit ballooned in March to the highest level in six years, driven by a record increase in imports as commercial activity resumed at West Coast ports after a resolution to labour disputes. The gap increased 43.1%, the biggest jump in 18 years, to $51.4 billion, the largest since October 2008, the Commerce Department said. Exports rose 0.9% to $187.8 billion, while imports surged 7.7% to $239.2 billion. Last week data showed that the overall economy grew a tiny 0.2%. A disappointing trade deficit was already estimated to have slashed 1.25 percentage points from first quarter GDP. Nevertheless, the March data could send GDP into negative territory. Yet, economists expect a rebound in growth in the current quarter to around 2%, accelerating to a 3% average in the second half of the year. Rising employment is predicted to boost stronger consumer spending, which should help offset weak export growth.
A separate report showed activity in the US non-manufacturing sector unexpectedly accelerated in April. According to the Institute for Supply Management, the corresponding index came in at 57.8 last month, up from 56.5 in March. The gauge remained in expansion territory, above the 50-point mark, for the 63rd consecutive month.
Stephen Pope, a managing partner, gives his opinion about the current situation concerning the Bank of Japan. He says that if you want to find any shock revelations about what the BoJ are up to, one actually has to start digging quite deeply into the data. Stephen comments that the data a lot of data mining is required, because at the current time it is uncertain whether the Abenomics, the Three Arrows, are really working. He also adds that "there has been a lot of pressure from the Government on the BoJ to be a heavy intervention machine, so almost sacrificing their independence in order of making Abenomics work and pushing Japan forward."
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 ISM Non-Manufacturing PMI and Japanese Monetary Base
At the end of the day there is only one data release, concerning the Japanese economy, the Monetary Base. Figures are expected to worsen, whereas the US fundamental data, such as the ADP Employment Change, is expected to improve. As a result, the USD/JPY pair should climb up, although the US data tends to disappoint lately. Moreover, the head of the Fed is to make a statement today, which will definitely concern the decision on when the Fed is planning to raise interest rates. By day's end, the US Dollar might weaken against the Yen.
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," he said.
USD/JPY: further weakness expected
The USD/JPY pair experienced substantial volatility on Tuesday. The Greenback stretched out towards 120.50 and 119.70, failing to reach the worst-case scenario low of 119.64. The 55-day SMA provided sufficient support to stop the decline, as the Buck settled at 119.93, crossing the 120 barrier. The US Dollar is expected to fall deeper today, with the nearest significant support retaining location around 119.64. However, if the US fundamental data surprises with strong figures, the pair might erase this week's losses. Technical studies are giving mixed signals, unable to confirm either scenario.
Daily chart
After Monday's consolidation the USD/JPY pair experienced a hike on Tuesday. However, the pair did not overstay its welcome, as the 120.50 psychological level pushed the pair even further down. The 120 barrier was crossed and the US Dollar keeps edging closer to the 200-hour SMA. Once the Greenback goes under the SMA, it will be hard to climb back up and require strong supports.
Hourly chart
Market sentiment weaker, but remains bullish
Market sentiment worsened, as the portion of longs dropped from 67 to 57%. At the same time, the percentage of buy orders also decline, as only 52% of them are to acquire the Greenback.
Bullish market sentiment of OANDA's traders returned to its Monday's level of 57%. Meanwhile, SAXO Group traders' outlook towards the Greenback remained unchanged for the third time, as 72% of all positions are still long.
Spreads (avg, pip) / Trading volume / Volatility
17% of traders expect the US Dollar to cost between 123.00 and 124.50 yen in three months
The mean forecast for August 6 is 121.10. The vast majority of the survey participants (63%) expect the US Dollar to cost more than 120 yen. The most popular price choice is divided 123.00 and 124.50 yen, selected by 19% of traders. The second popular price range, 121.50-123.00, chosen by 14% of the surveyed.
While closing on a positive note at the 120.20 level on Friday, the pair is estimated to calm slightly down this week, possibly falling back below 120 but remaining largely inactive. Still, the majority of Dukascopy Community members prefer a positive case for the Greenback, namely in two thirds of all the cases.
Tommaso, a trader with a bullish outlook towards the USD/JPY currency pair, says that the Yen has been strongly devaluing from July 2014 to November 2014. Tommaso also mentioned that "there has been a period of "controlled" oscillations of the pair, but it seems that the poor results obtained require another step of devaluation. His prospect is that the pair could reach the quite 121 steadily during this week. At the same time, Gereltod, another community member, assumes the USD/JPY is forming a wedge and that it will breakout the formation on the bearish side, or that it could continue ranging by bouncing off a support level at 118.50. Nevertheless, Gereltod mentioned that "even if it bounces off the support level, I believe the pair will plunge through it eventually".