- The share of buy orders edged up from 33 to 38%
- Bulls are now in the majority, taking up 58% of the market
- Immediate resistance is represented by the weekly PP at 119.80
- The closest support is located around 118.10, namely the Bollinger band
- 23% of traders expect the Greenback to cost between 124.50 and 126.00 yen in three months
- Upcoming events today: US ADP Non-Farm Employment Change, US Revised Nonfarm Productivity, US Factory Orders, Fed's Beige Book, Japanese Foreign Bond Investment and Investment in Japan Stocks
The US Dollar experienced mixed performance over the Tuesday, appreciating against some major peers and suffering losses against the others. Gains of 1.42%, 0.83%, 0.48% and 0.40% were recorded against the Aussie, the Loonie, the Kiwi and the Sterling, respectively. The USD/JPY lost 1.15%, amid risk aversion, while the Greenback also slumped 0.64% and 0.52% versus the Euro and the Swissie, respectively.
Activity in the US manufacturing sector slowed in August to the weakest level in more than two years, while construction spending surged to the highest level in more than seven years. According to the Institute for Supply Management, the index of national factory activity dropped to 51.1 from 52.7 in July, hitting the lowest since May 2013. Economists, however, had expected 52.6. The new orders sub-index plunged to 51.7 from 56.5 and also marked the lowest level since May 2013. The prices paid index declined to 39.0 from 44.0, while the employment index fell to 51.2 from 52.7 and the imports index hit its lowest level since January 2013 at 51.5. Despite US manufacturing staying in green territory, the pace of growth remained weak, underlining concerns surrounding the strong Dollar, sluggish overseas demand and a patchy first quarter. Markit Economic's data also confirmed deceleration in business activity of the US manufacturing sector, with the corresponding gauge coming in at 53.0, the lowest level since November 2013.
A separate report showed construction spending rose 0.7% to a seasonally adjusted annual rate of $1.08 trillion, the highest level since May 2008. Total construction spending has risen 13.7% over the past 12 months.
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 ADP Non-Farm Employment Change
Today the US ADP Non-Farm Employment Change is due, which will be a closely monitored release, as its strong figures might influence the Fed to raise interest rests in September. The Employment Change is forecasted to increase, thus, boosting the US currency; however, the share of Factory Orders in the US is expected to slump from 1.8 to 0.9%. Ultimately, the Fed's Beige Book report is to show the overall US economic condition, a positive result of which would only boost the Fed's decisiveness of a September rate hike. At this point, the fundamental data from Japan is to have close to no effect at all, as all focus has shifted back to the Fed possibly raising rates this month.
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 regain its bullish momentum
The US Dollar suffered more losses on Tuesday, amid weaker-than-expected fundamental data from both the US and China. The USD/JPY breached the immediate support cluster and ultimately fell under the weekly PP to 119.70. A rebound is likely to take place today, with the risk sentiment returning to the market. The nearest significant resistance is now the cluster around 121.00, namely the monthly PP and 200-day SMA; although the Greenback risks dropping deeper down if the fundamental data disappoints again today, causing a plunge under 119.00.Daily chart
As expected, the USD/JPY currency pair failed to regain the bullish momentum yesterday and slumped back under the 120.00 major level. Although the major level was retaken today, the 200-hour SMA might still push the pair back down, while a rebound to 121.74, namely last week's high, might occur after the Employment Change data is released.
Hourly chart
Bulls still prevailing over bears
OANDA and SAXO clients retain their bullish perspectives towards the Buck. The share of bulls at OANDA edged higher from 56 to 59%. Meanwhile, 57% of SAXO Group clients retain a positive outlook towards the Greenback, up from 56%.
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 August 02 and September 02, 55% of the participants expect the US Dollar to cost more than 123 yen in three months. However, the mean forecast for December 2 is 122.91. Meanwhile, the highest number of poll participants, namely 23%, suggest that the US currency will cost between 124.50 and 126.00 yen in three months, while the second largest choice, selected by 16% of the surveyed, implies that the US Dollar will cost between 123.00 and 124.50 yen.
Only 27% of participants in the weekly quiz suggested the pair would develop to the north last week. This week's forecasts, however, are favouring the Greenback's bullish tendency, but an advantage of long votes is insignificant, namely 52% vs 48% for bears. Moreover, according to the majority of traders, we are unlikely to see a strong recovery, as the mean forecast for Friday of this week is located at 120.5.
On the bullish side we have Tommaso, who suggests that "the pair seems oriented to test again the 122.50 mark; daily MCD shows an uptrend direction for the week, with the sentiment of the market focused now on the next move of the Fed in September." With a different opinion and on the bearish side, Jignesh believes that the USD/JPY has been following the equity markets extremely closely, especially after last week's major one day drop. "This week, as the equities approach pre-crash levels, we may see market participants looking to reducing exposure to the unusual increased volatility seen recently", Jignesh said. As a result, he stated that the mentioned correlation will be followed by the USD/JPY, which starts the week with retesting a major weekly up trend-line.