- The portion of purchase orders declined from 48 to 45%
- 65% of traders hold long positions today
- Immediate resistance is represented by the monthly PP, weekly R1, and 200-day SMA around 121.00
- The closest support is located at 120.47, namely the 20-day SMA
- 16% of traders expect the Greenback to cost either between 121.50 and 123.00 yen or between 124.50 and 126.00 yen in three months
- Upcoming events today: US PPI and Core PPI, US Preliminary UoM Consumer Sentiment, US Monthly Budget Statement
The US Dollar declined against most major peers, amid rather poor fundamental data results. The largest decline was registered against the Aussie, which strengthened due to a lot better-than-expected Employment Change figures. The Buck also lost 0.74%, 0.56% and 0.55% versus the Kiwi, the Euro and the Sterling, respectively. Nevertheless, the Greenback managed to appreciate against the Japanese Yen, gaining 0.35%.
The number of Americans seeking first-time unemployment benefits declines last week, highlighting the persistent strength of the labour market. Initial jobless claims, a proxy for layoffs across the country, dropped by 6,000 to a seasonally adjusted 275,000 in the week ended September 5, according to the Labor Department. Moreover, claims for the prior week were revised down to 281,000 from the initially reported 282,000. The four-week moving average of claims, which strips out weekly volatility, climbed by 500 to 275,750 last week. Claims have remained below 300,000 for 27 consecutive weeks, the longest such streak in more than 40 years. Claims below 300,000 generally indicate robust hiring and a healthy labour market.
The Labor Department said last week the US economy created 173,000 jobs in August, the weakest monthly gain since March, while the unemployment rate slid to 5.1%. That leaves Fed policy makers with a mixed picture of the world's number one economy as they head into a crucial policy meeting next week. Many economists expect the central bank to begin hiking interest rates for the first time in nearly a decade as soon as this month. However, global turmoil, coupled with a stronger Greenback and falling oil prices, has complicated that decision.
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 PPI, Preliminary UoM Consumer Sentiment and Budget Balance
The first even is at 12:30 PM GMT, namely the US PPI. The PPI is released by the Bureau of Labor Statistics. It measures the average changes in prices in primary markets of the US by producers of commodities in all states of processing. Changes in the PPI are widely followed as an indicator of commodity inflation. The yearly PPI is expected to worsen, as the forecast stands at -0.90%, down from -0.80%. Another significant even to consider is the US Preliminary UoM Consumer Sentiment, which is a leading indicator of consumer spending, which, in turn, accounts for the majority of all economic activity. The Sentiment Index is also expected to deteriorate, namely from 91.9 to 91.2, leaving us with the final Friday's data release – the Budget Balance. Improvements in the Balance could turn the tide for the US currency and provide a sufficient boost to outperform other major peers.
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 muted, despite BoJ easing prospects
The Greenback's attempts to pierce the resistance cluster around 121.00 were in vain, as rather poor fundamental data limited the USD/JPY currency pair's upside potential. Even though the cluster weakened today, with the 20-day SMA shifted further to the downside, it is still likely to prevent the pair from climbing above the 200-day SMA today. The fundamental drivers are also expected to disappoint today, weighing on the US Dollar even more, whereas technical studies retain their bearish signals. Nonetheless, a slight surge to the psychological level of 121.00 is our base case scenario.Daily chart
The US Dollar failed to retreat to the 200-hour SMA, although losses did occur. With rather poor fundamental expectations, the USD/JPY could decline all the way back to the 120.00 major level, which is also bolstered by the 200-hour SMA today.
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 down from 63 to 61%. Meanwhile, 59% of SAXO Group clients retain a positive outlook towards the Greenback, up from 55%.
Spreads (avg, pip) / Trading volume / Volatility
16% of traders expect the Greenback to cost either between 121.50 and 123.00 yen or between 124.50 and 126.00 yen in three months
According to the survey conducted between August 11 and September 11, 49% of the participants expect the US Dollar to cost more than 123 yen in three months. However, the mean forecast for December 11 is 122.67. Meanwhile, the highest number of poll participants, namely 16%, suggest that the US currency will cost either between 121.50 and 123.00 yen or between 124.50 and 126.00 yen in three months, while the second largest choice, selected by 14% of the surveyed, implies that the US Dollar will cost 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.