- The number of sell orders rose to 68%
- 45% of all positions are long today
- Immediate resistance is represented by the monthly PP at 120.85
- The closest support is located around 119.80, namely the weekly PP
- 22% of traders expect the Greenback to cost between 124.50 and 126.00 yen in three months
- Upcoming events today: US Trade Balance, US Jobless Claims, US Final Services PMI, US ISM Non-Manufacturing PMI, US Natural Gas Storage
The US Dollar increased against most major peers on Wednesday, despite rather poor ADP data. The NZD/USD, however, rose 0.79%, following with the AUD/USD climbing 0.49%. Gains of 1.03%, 0.76% and 0.75% were registered versus the Swissie, the Euro and the Yen, respectively, while the Buck remained relatively unchanged against the Sterling, losing 0.02%, and the Loonie, adding 0.10%.
US private sector added fewer jobs than expected in August, undermining expectations that the Fed will hike interest rates in September. According to the ADP National Employment Report, American companies employed 190,000 workers in the reported month, missing economists' expectations for 200,000 new jobs. The report was published ahead of the government's more comprehensive employment data due on Friday. Economists predict that non-farm payrolls rose by 220,000 jobs in August following the 215,000 gain in July. The unemployment rate is predicted to tick down to 5.2% from the 5.3% in July. The data will come less than two weeks before the Fed's crucial policy meeting on September 16-17. The chances of an interest rate increase this month have been diminished by a global stock market rout due to poor economic data from China.
Separately, the Labor Department said nonfarm productivity rose at its strongest pace in more than a year in the second quarter, keeping wage inflation weak for now. The government revised productivity to show it surging at a 3.3% annual rate, the quickest since the fourth quarter of 2013, instead of the 1.3% pace reported last month.
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 Trade Balance, ISM Non-Farm Employment Change and Markit Services PMI
A rather vast amount of data concerning the US economy is due today. The US Trade Balance, a balance between exports and imports of goods and services, is expected to narrow slightly, while the ISM Non-Manufacturing PMI is likely to post weaker data, compared to the previous release. With rather mixed data and a weaker labour market, the Greenback might suffer some losses today and give room for the Sterling's appreciation. Furthermore, the Markit Services PMI is expected to remain flat and any shift in the data is likely to cause volatility, as the given PMI takes up a rather large part of total GDP.
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 appears to be glued to 120.00
The USD/JPY currency pair managed to rebound on Wednesday, as market sentiment slightly improved, although the resistance cluster around 121.00 was not reached. The Greenback keeps gravitating towards the major level of 120.00, unable to fully pierce the weekly PP or the 121.00 resistance cluster. Consequently, the US Dollar is expected to bounce back today, showing modest losses and retreating to the 120.00 psychological level or even to the weekly PP at 119.80. Technical studies remain bearish in the daily timeframe, bolstering the possibility of the negative outcome.Daily chart
The USD/JPY currency pair managed to pierce the 200-hour SMA by the end of the day, which is now providing support along with the major level of 120.00. A rebound today, if such occurs, should ensure a rally towards the previous week's high of 121.74.
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 59 to 61%. Meanwhile, 57% of SAXO Group clients retain a positive outlook towards the Greenback.
Spreads (avg, pip) / Trading volume / Volatility
22% of traders expect the Greenback to cost between 124.50 and 126.00 yen in three months
According to the survey conducted between August 03 and September 03, 56% of the participants expect the US Dollar to cost more than 123 yen in three months. However, the mean forecast for December 3 is 122.88. Meanwhile, the highest number of poll participants, namely 22%, suggest that the US currency will cost between 124.50 and 126.00 yen in three months, while the second largest choice, selected by 18% 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.