The recent rally in USD/JPY appears to be sputtering ahead of the 2018-high (114.55) as the U. of Michigan Confidence survey does little to boost the economic outlook, and recent price action raises the risk for a larger pullback as the exchange rate fails to extend the series of higher highs & lows from earlier this week.
USD/JPY BULLISH SEQUENCE FIZZLES AS U. OF MICHIGAN FAILS TO IMPRESS
USD/JPY struggles to hold its ground as the U. of Michigan Confidence survey narrows for the second month, with the index slipping to 98.3 from 98.6 in October, and signs of waning household sentiment may push the Federal Reserve to soften the hawkish outlook for monetary policy as it dampens the outlook for private-sector consumption, one of the biggest drivers of growth.
Nevertheless, key data prints on tap for the week ahead should keep the Federal Open Market Committee (FOMC) on track to implement higher borrowing costs as the U.S. Consumer Price Index (CPI) is expected to climb to 2.5% from 2.2% per annum in September, while Retail Sales are projected to increase 0.6% in October after rising a marginal 0.1% the month prior.
Greater consumption along with signs of heightening price pressures should keep USD/JPY afloat as Fed Fund Futures continue to highlight expectations for a 25bp rate-hike in December, and it seems as though the FOMC will respond to the shift in U.S. trade policy by implement above-neutral interest rates as the unexpected uptick in the Produce Price Index (PPI) warns of rising input costs.
In turn, the diverging paths for monetary policy casts a long-term bullish outlook for USD/JPY especially as the Bank of Japan (BoJ) remains reluctant to move away from its Quantitative/Qualitative Easing (QQE) Program with Yield-Curve Control, but the recent pickup in volatility appears to be spurring a shift in retail interest as traders sell into the recent advance in the exchange rate.
The IG Client Sentiment Report shows 42.0% of traders are now net-long USD/JPY versus 52.1% last week, with the ratio of traders short to long at 1.38 to 1. The number of traders net-long is 2.0% higher than yesterday and 11.0% lower from last week, while the number of traders net-short is 17.0% higher than yesterday and 13.4% higher from last week.
