- The number of purchase orders added one percentage point up to 57%
- Bullish market sentiment returned to last Wednesday's level of 74%
- Nearest resistance rests around 124.68, represented by the Bollinger band
- The closest support now lies around 123.59, namely the weekly PP
- 20% of traders expect the Greenback to cost between 124.50 and 126.00 yen in three months
- Upcoming events today: US Treasury Sec Lew Speech
The US Dollar remained strong on Friday, strengthening against most major currencies. The largest gains were detected against the Aussie (0.62%), the Swiss Franc (0.53%) and the Euro (0.49%), following with a lesser 0.15% one against the Loonie. The Greenback, however, remained relatively unchanged against three majors, namely the Kiwi, adding 0.10%, the Sterling, gaining 0.05%, and the Yen, losing 0.02%.
US housing starts recovered strongly in June, while building permits surged to near the highest level in eight years, adding to signs of a rapidly strengthening housing market. Groundbreakings on new homes soared 9.8% to a seasonally adjusted annual rate of 1.17 million units, according to the Commerce Department. May starts were revised up to 1.07 million units from 1.04 million units reported previously. At the same time, permits for future home construction surged 7.4% to 1.34 million units, marking the highest level since July 2007. Measured on annual basis, housing starts rose 26.6%, while building permits advanced 30% in June. In addition to that, a survey showed builders' confidence stood at a more than nine-year high in July, reinforcing the view that both permits and groundbreaking have scope to increase further..
A separate report showed US consumer prices climbed for a fifth consecutive month in June amid higher fuel and food costs. The cost of living in the US rose a seasonally adjusted 0.3% in June from the previous month, the Labor Department reported. Measured on a yearly basis, prices inched up by 0.1%. When excluding volatile energy and food components, core prices climbed 0.2% last month and 1.8% from a year earlier. Meanwhile, US consumer sentiment declined more than expected in July. The University of Michigan's preliminary July reading on the index of consumer sentiment came in at 93.3, down from a final reading of 96.1 in June.
Sean Yokota, head of Asia Strategy at SEB 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. Overall, Yokota reckons that 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."
Market lacks movers in the beginning of the week
The week is to begin with a lack of fundamental data, which could influence the market. On Monday we could only expect the US Treasury Secretary Speech, which will concern the importance of financial reform, while in Japan there is a bank holiday today. No significant economic events are scheduled for Tuesday either, thus, trade is expected to remain rather flat.
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.
Steve Lucas, technical analyst at 3CANALYSIS, gives their perspectives on the USD/JPY currency pair. "We have persistently been bullish of USD/JPY, but in the very short-term we think there will be a pullback", he said. Steve explained their view by mentioning that since the pair posted the 12.5 year high in June, last week put in a bearish reversal candle, which is a negative signal. "We also think that the deception out there is that the Fed is going to be a little easier on raising interest rates and people are going to be a bit cautious and a bit sensible and take the money off the table", the analyst added.
USD/JPY to remain flat above 124.00
The 124.00 major provided support this time, preventing the USD/JPY pair from sustaining too much losses. Today the US Dollar is expected to remain relatively unchanged against the Japanese Yen, amid lack of market movers and Japanese bank holiday. Furthermore, technical indicators are giving mixed signals in the daily timeframe, suggesting the Greenback is to trade flat. The 124.00 psychological level keeps providing support, while immediate resistance rests too far, around 124.75.Daily chart
After breaching the support line on Friday, the USD/JPY currency pair failed to regain the bullish momentum. The pair consolidated through the rest of the day, unable to edge below the 124.00 psychological level. The flat trade is likely to last through Monday as well, trading between 124.00 and 124.20.
Hourly chart
Bulls still prevailing over bears
Bullish market sentiment returned to its Wednesday's level of 74%, whereas the number of purchase orders added one percentage point up to 57%.
OANDA and SAXO clients retain their bullish perspectives towards the Buck. The share of longs at OANDA slightly advanced from 56 to 57%, while the SAXO Bank's sentiment weakened, with 58% of traders holding long positions, compared to 59% previously.
Spreads (avg, pip) / Trading volume / Volatility
20% of traders expect the Greenback to cost between 124.50 and 126.00 yen in three months
According to the survey conducted between June 20 and July 20, 61% of the participants expect the US Dollar to cost more than 123 yen in three months. However, the mean forecast for October 20 is 123.42. Meanwhile, the 124.50-126.00 price interval received the largest amount of votes, namely 20%, while the second choice is taken by the 126.00-127.50 price range, chosen by 16% of participants.