- Purchase orders now take up 64% of the market
- Bullish traders' sentiment remains unchanged at 74%
- Immediate resistance is represented by the weekly R1 at 124.30
- The closest support is located at 123.93, namely weekly PP
- 25% of traders expect the Greenback to cost between 124.50 and 126.00 yen in three months
- Upcoming events today: US Advance GDP, US Goods Trade Balance, US Jobless Claims, US Advance GDP Price Index, US Natural Gas Storage, Japanese Household Spending, Japanese Tokyo Core CPI and National Core CPI, Japanese Unemployment Rate
The US Dollar managed to rebound amid the FOMC Meeting Minutes, after plunging on Tuesday. The Greenback gained the most against the Kiwi, the Euro, the Aussie and the Swiss Franc, adding 0.86%, 0.74%, 0.69% and 0.60%, respectively. Lesser gains were detected against the Yen (0.30%) and the Loonie (0.16%), while the Buck remained relatively unchanged versus the Sterling, adding only 0.06%.
The Fed remains on track to hike interest rates later this year, with odds rising that the decision will come as soon as its next monetary policy meeting in September, as the US economy continues to perform in line with expectations. The decision to keep rates near at all-time low for at least a few more weeks was unanimous, supported by all ten voting members of the FOMC. Nevertheless, a number of those policy makers have said in recent months that they do not think the Fed should wait much longer.
Following FOMC two-day meeting, Fed officials said the world's number one economy managed to overcome a first-quarter slowdown and was growing moderately despite a weakness in the energy sector and headwinds from abroad. Thus, the central bank upgraded its view of the economy and the labour market, but remained uncertain about the course of inflation, which has been weaker than the Fed would like. Describing the job market, the Fed for the first time pointed to "solid" job gains and declining unemployment. The unemployment rate has slid to a seven-year low of 5.3%. The Fed said it only needed to see "some" improvement in the labour market. Besides the additional amelioration on the labour front, the central bank said it also needed to be more confident that low inflation will rise to the 2% medium-term target. The Fed's policy committee next meets Sept. 16 and 17.
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 Advance GDP & Goods Trade Balance, Japanese Household Spending
From the US side a number of high-impact releases are scheduled for today at 12:30 PM GMT. The most important one is the US GDP First Release, which is expected to have a high impact on the US Dollar, since it is the earlier GDP Estimate. The GDP is forecasted to show significant signs of improvement, although the actual growth pace might turn out to be smaller. Furthermore, the US Jobless Claims are expected to rise again today. Even though it tends to have a smaller impact on the US crosses, it still indicates labour market conditions in the US, thus, providing the Fed with more information, based on which they decide whether to raise or hold interest rates. The final event is the Goods Trade Balance. It is important because it is the event's first data release. Trade in goods makes up approximately three quarters of total trade and provides insight into the US Trade Balance, which is due next week. This event's effect on the US currency might be unpredictable and somewhat unexpected. From the Japanese side most attention should be paid to the Household Spending, which is forecasted to deteriorate, compared to the June's report.
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 keeps trying to stabilise above 124.00
The Greenback's attempts of edging lower were nullified by a serious obstacle in form of the support cluster around 123.45. Although the USD/JPY erased Monday's gains yesterday, the pair failed to close above the 124.00 target area, as the weekly PP prevented the rally. The US Dollar is likely to outperform the Yen again today, thus, the 124.00 psychological level should be retaken. However, the Buck might still retreat towards 123.55 if the US fundamental disappoint, despite bullish technical indicators.Daily chart
The USD/JPY currency pair extended its gains and pierced through the 200-hour SMA yesterday. However, the pair was unable to breach the 124.00 major level until today. Even though the US Dollar keeps edging higher against the Yen, risks of losing the bullish momentum persist, as today's fundamental data brings uncertainty.
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 59%, whereas only 59% of SAXO Group clients retain a positive outlook towards the Greenback, down from 70%.
Spreads (avg, pip) / Trading volume / Volatility
25% of traders expect the Greenback to cost between 124.50 and 126.00 yen in three months
According to the survey conducted between June 30 and July 30, 65% of the participants expect the US Dollar to cost more than 123 yen in three months. However, the mean forecast for October 30 is 124.04. Meanwhile, the 124.50-126.00 price interval received the largest amount of votes, chosen by a quarter of all poll participants, while the second largest choices, both selected by 12% of the surveyed, implies that the US Dollar will cost between either 117.00 and 118.50 yen or between 126.00 and 127.50 yen after three months.
This week traders' expectations changed notably, as now 71% of Dukascopy Community members estimate the pair to gain in value.
Tommaso, a trader with a positive outlook towards the USD/JPY currency pair, assumes that the June's correction seems finished and the pair looks ready to reach higher targets. "Probably during the next week the pair could reach 124.50 level", he said. Nevertheless, another poll participant, Direct, is short the Greenback. He expects the given pair to edge closer to the 55-day SMA, which implies that the Buck is to weaken against the Japanese Yen.