- Buy orders shifted from 63 to 74%
- Now 70% of traders are long the Buck
- Immediate resistance is represented by the weekly PP at 123.93
- The closest support is located around 123.45, namely the 55-day SMA, monthly PP and weekly S1
- 23% of traders expect the Greenback to cost between 124.50 and 126.00 yen in three months
- Upcoming events today: US Durable and Core Durable Goods Orders
The American Dollar performed rather well over the weekend, with exception against the Sterling and the Yen. The Greenback added the most versus the Aussie, namely 1.14%, following with lesser gains of 0.58% against the Kiwi and 0.33% against the Swissie. However, the Buck remained relatively unchanged versus the Pound and the Yen, losing 0.03% and 0.10%, respectively.
US new home sales dropped to their lowest level in seven months in June, while May's data was revised sharply lower, indicating a minor setback for the housing market rebound. Sales of newly built homes plunged 6.8% in the reported month from May to a seasonally adjusted annual rate of 482,000, the lowest level since November 2014, according to the Commerce Department. Economists, however, had expected a rate of 550,000. In May, sales declined 1.1%, compared with an initially reported 2.2% rise. New home sales make up only 8.1% of the housing market and are notorious for a high volatility on a monthly basis. The broader trends indicate the new-home market is gaining traction along with the overall housing sector. Measured on an annual basis, new home purchases surged 18.1% from the previous year. Sales averaged an annual rate of 512,000 in the first half of 2015, compared with an average of 440,000 for all of 2014.
In a separate report, Markit said business activity in the US manufacturing sector rose in July, rebounding from the lowest level in almost two years reached in June. US manufacturing PMI edged higher to 53.8 this month, up from 53.6 in June. Yet, manufacturers admitted that investment spending cuts in the energy sector continued to weigh on sales.
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 Core Durable Goods Orders
The US Durable and Core Durable Goods Orders are the two main events for today. They are to be released simultaneously at 12:30 PM GMT and both are expected to show signs of growth. The Core Durable Goods Orders is a leading indicator of production, as the rising number of orders causes the manufacturing activity to rise as well. Even if the data fails to meet expectations, tomorrow's Japanese Retail Sales data, which is expected to rise at a much slower rate in June's report, is likely to pressure down the Yen, therefore, boosting the USD/JPY.
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 attempt to retake 124.00
The Greenback failed to appreciate on Friday, which resulted in reaching the weekly PP at 123.59. The pivot point managed to prevent the USD/JPY from falling deeper, as it kept the pair afloat during all of the week. Furthermore, the US currency is expected to rebound from a strong cluster around 123.45 today and stabilise above the 124.00 psychological level, thus, breaching the immediate resistance in face of the weekly PP. Meanwhile, technical indicators are giving bullish signals, bolstering the possibility of the positive outcome.Daily chart
At the end of Friday, the 200-hour SMA was breached, opening the door for more weakness. Nevertheless, in spite of the USD/JPY suffering losses in the early hours today, the tide is expected to turn by the end of the day. The given SMA should be pierced once again and keep the pair above the 124.00 major level afterwards.
Hourly chart
Bulls still prevailing over bears
OANDA and SAXO clients retain their bullish perspectives towards the Buck. The share of bulls at OANDA remains unchanged at 55%, whereas 68% of SAXO Group clients now have a positive outlook towards the Greenback, up from 58%.
Spreads (avg, pip) / Trading volume / Volatility
23% of traders expect the Greenback to cost between 124.50 and 126.00 yen in three months
According to the survey conducted between June 27 and July 27, 62% of the participants expect the US Dollar to cost more than 123 yen in three months. However, the mean forecast for October 27 is 123.73. Meanwhile, the 124.50-126.00 price interval received the largest amount of votes, namely 23%, while the second largest choices, selected by 13% of the poll participants, implies that the US Dollar will cost between 117.00 and 118.50 yen after three months.