- Market sentiment remains bullish, but at 69%
- The number of orders to purchase the Buck inched higher from 55 to 63%
- Immediate resistance is represented by the weekly and monthly R1s and the Bollinger band around 124.80
- The closest support is located at 123.59, namely the weekly PP
- 18% of traders expect the Greenback to cost between 124.50 and 126.00 yen in three months
- Upcoming events today: US Existing Home Sales, US Crude Oil Inventories, Japanese Trade Balance
The American Dollar decline against most major peers yesterday, with exception versus the Sterling. The Largest loss was seen against the Euro, namely 0.94%, following with lesser declines against the Kiwi (0.70%), the Aussie (0.70%) and the Swissie (0.57%). The Greenback, however, added 0.09% against the British Pound.
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."
US Existing Home Sales and Japanese Trade Balance
From the US side attention should be paid to the Existing Home Sales. After reaching a level of 5.35 million on May, the June's figure is expected to a high, unseen for almost two years. However, the Homes Sales figures have a rather high chance of disappointing. Later today the Ministry of Finance is to release the Japanese Trade Balance Report, which is forecasted to worsen. Nonetheless, according to historical data, there is a high possibility of the data surprising to the upside; therefore, we might still see the USD/JPY pair edge lower by day's end.
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 attempts to retake 124.00, risks falling deeper
The USD/JPY currency pair suffered losses on Tuesday, edging below the 124.00 major level once again. Although the US Dollar keeps weakening against the Yen right now, a rebound is expected to take place by the end of the day. The Greenback is approaching the weekly PP support at 123.59, which is likely to turn the tide; while the fundamental data and the technical indicators are bolstering the possibility of a rally today. However, if the fundamental disappoint, we could still see a decline towards a strong cluster around 123.35.Daily chart
The US Dollar surprised with its performance, as it tumbled yesterday. Although the USD/JPY kept weakening, the 200-hour SMA appears to have caused the Greenback to rebound. The bullish momentum is expected to prevail today, while risks piercing the SMA still persist.
Hourly chart
Bulls still prevailing over bears
OANDA and SAXO clients retain their bullish perspectives towards the Buck. The share of longs at OANDA edged closer to the equilibrium, down from 59 to 51%, while the SAXO Bank's sentiment remains unchanged, as 59% of traders still hold long positions today.
Spreads (avg, pip) / Trading volume / Volatility
18% of traders expect the Greenback to cost between 124.50 and 126.00 yen in three months
According to the survey conducted between June 22 and July 22, 57% of the participants expect the US Dollar to cost more than 123 yen in three months. However, the mean forecast for October 22 is 123.39. Meanwhile, the 124.50-126.00 price interval received the largest amount of votes, namely 18%, while the second largest choice, selected by 14%, implies that the US Dollar will cost less than 117.00 yen.
All in all, traders are bearish on the present pair this week, with 56.5% of responds being pessimistic. On average, traders believe the pair will decline to about the 123.7 level by the end of July 24.
Geula4x, one of the Dukascopy Community members, expects the US Dollar to advance against the Japanese Yen by week's end. He mentioned that "USD/JPY seems very bullish on the daily chart. Price has bounced significantly from the 120.50 support area. It seems that the Federal Reserve's principle decision to raise interest rates has strengthened the USD across the board." However, Jignesh, another Community member, is on the majority's side. "Without any major US data this week acting as a catalyst, the USD/JPY pair may be under some pressure", he said. Jignesh also added that as of last few sessions, we have seen the pair struggling to move higher, whilst the equities, which traditionally carry a high correlation, have done it.