- Only 51% of commands are to acquire the Buck
- Bullish SWFX traders' sentiment returned to its Monday's level of 73%
- Immediate resistance is represented by the monthly PP, weekly R1, 20 and 200-day SMAs around 121.00
- The closest support is located around 119.71, namely the weekly PP
- 17% of traders expect the Greenback to cost between 124.50 and 126.00 yen in three months
- Upcoming events today: US JOLTS Job Openings, Japanese PPI, Japanese Core Machinery Orders
The US Dollar posted declines against most major peers, with exception against the Swissie and the Yen. The USD/JPY added 0.56%, while the Buck gained only 0.23% versus the Swiss Franc, following with declines against commodity currencies, such as the Kiwi (-1.66%), the Aussie (-1.24%). The Greenback also lost 0.79% versus the Pound and 0.72% versus the Loonie, while holding most resilient versus the Euro and plunging only 0.42% against it.
The Fed's comprehensive measure tracking the health of the US labour market improved for the fourth straight month in August. The Labor Market Conditions Index rose to the highest level in eight months of 2.1 points last month from an upwardly revised 1.8 points in July, previously reported as 1.1 points. The gauge rebounded this summer after decreasing to negative territory for the first time in three years in spring. Nevertheless, it is averaging 1.8 points over the past three months, which is markedly less than the nearly 4 points reported over the same period last year. The data comes on heels of the government's monthly employment report. The numbers showed the jobless rate fell to 5.1%, the lowest in seven years. However, the increase in payrolls fell short of the market's expectations, as nonfarm payrolls increased 173,000 last month since the manufacturing sector lost the most jobs since July 2013, following an upwardly revised 245,000 rise in July. Nevertheless, the numbers were still within the normal seasonal volatility associated with the start of the new school year.
Fed policy makers gather in Washington next week to weigh pros and cons of hiking interest rates for the first time in almost a decade. While the nation's labour market continues to improve to warrant a hike, the inflation outlook remains cloudy and the global economy underperforms. Hence, analysts remain divided about the odds of September rate hike.
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 JOLTS Job Openings and Japanese Core Machinery Orders
From the US side the only even today is the US JOLTS Job Openings report, with the forecast of 5.30 million, up from 5.25 million. This event might influence the market as it is a leading indicator of overall employment, thus, should be considered as a possible market mover. From the Japanese side, attention should be paid to the Core Machinery Orders, which are expected to rebound after showing a drastic decline to -7.9%. The data is likely to beat expectations, according to historical figures, and therefore, strengthen the Yen against the Buck.
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 settles down above 120.00
Although the 119.00 level was tested again, the USD/JPY still appreciated on Tuesday, amid a rebound of the investor sentiment. Furthermore, the 120.00 mark was retaken, while the Buck feels ready to extend its rally for the third consecutive day. Nonetheless, a substantial resistance cluster, represented by the weekly R1, monthly PP, 20 and 200-day SMAs, is blocking the Greenback's path around 121.00. If breached, the US Dollar is likely to reach a fresh two-week high afterwards, with the next target shifting to 122.70.Daily chart
The US Dollar managed to rebound yesterday, but the volatility to the upside was limited by the 200-hour SMA. However, it was pierced early today, allowing the USD/JPY to extend its rally to its one-week high of 120.70, which remains a rather strong resistance area and could turn the pair around.
Hourly chart
Bulls still prevailing over bears
OANDA and SAXO clients retain their bullish perspectives towards the Buck. The share of bulls at OANDA returned to its Friday's level of 65%. Meanwhile, 58% of SAXO Group clients retain a positive outlook towards the Greenback, up from 57%.
Spreads (avg, pip) / Trading volume / Volatility
17% of traders expect the Greenback to cost between 124.50 and 126.00 yen in three months
According to the survey conducted between August 9 and September 9, exactly half of the participants expect the US Dollar to cost more than 123 yen in three months. However, the mean forecast for December 9 is 122.83. Meanwhile, the highest number of poll participants, namely 17%, suggest that the US currency will cost between 124.50 and 126.00 yen in three months, while the second largest choices, both selected by 15% of the surveyed, imply that the US Dollar will cost either between 121.50 and 123.00 yen or between 126.00 and 127.50 yen.
The middle of the current week is forecasted to bring some important fundamental data, namely the release of revised data on Japanese second quarter economic growth, as well as data on the current account on Tuesday. The next day, Japan is going to announce data on machinery orders and to round up the week with the BSI manufacturing index. From the American side, traders could pay additional attention to the initial jobless claims release on Thursday and Friday's data on producer prices as well as consumer sentiment.
Sharsense, a member of the Dukascopy Community, supports the bulls, who take up two thirds of the market. "Yen seems to be driven by the difference between the US 10-year treasuries bonds and the Japanese bonds. It still acts as a safe-haven", sharpsense said. He expects the USD/JPY to stay in the sideway range between 115.9 and 121.5. Nevertheless, a trader with a bearish outlook towards the Greenback, namely csan86, suggests that the price formed a huge double top on the daily chart, therefore, he is expecting a very strong bearish domination. "The price has been moving in a narrowing range and it has formed a symmetrical triangle since the last week. This triangle is on the huge double top's neckline (120.70) which is a very strong support for more bearish movement approximately to 116.20", the trader explained.