- The share of sell orders increased from 31 to 59%
- Bulls take up 58% of the market
- The weekly and the monthly PPs around 103.40 represent immediate resistance
- Support is around 100.50
- 52% of the survey participants expect the US Dollar to cost less than 108.00 yen in three months
- Upcoming events: US Markit and ISM Manufacturing PMIs, US Construction Output, Japanese Consumer Confidence, US Core PCE Price Index, US Personal Spending and Income, Japanese Monetary Policy Meeting Minutes
The Bank of Japan (BoJ) announced an introduction of additional monetary stimulus at the end of its two-day meeting on Friday. The central bank increased its annual purchases of exchange traded funds (EFT) to 6 trillion yen ($57 billion) from the previous level of 3.3 trillion yen in order to boost inflation and growth, but left its asset-purchase target at 80 trillion yen. Seven out of nine policymakers voted to expand its purchases EFTs. Notably, the BoJ left its key interest rates unchanged at -0.1%, ignoring the administration of Prime Minister Shinzo Abe, who hoped for more aggressive easing measures from the central bank. Japan's central bank adopted negative interest rates in February to reach its 2% inflation target and boost economic growth. Moreover, the central bank stated that the recent Brexit vote, as well as economic slowdown in emerging markets and volatile markets were the main reasons for adopting these measures.
Other data released by the Ministry of Economy, Trade and Industry showed that Japanese retail sales dropped 1.4% year-over-year in June, following the previous month's fall of 2.1% and missing the 1.2% drop forecast. On a monthly basis, retail sales rose 0.2% in the same month, in line with analysts' expectations and up from last month's 0.0% growth.
Vatsal Srivastava, director at the Blackwater Consulting, explained why the US Dollar advanced against the Yen last week. He said there was nothing fundamentally driving USD/JPY on Monday, but one of the key drivers was the falling oil prices, which was actually boosting the Yen; in analyst's opinion, as there was an addition cause for more QQE. Vatsal Srivastava also mentioned that "it is going to be a hard economic ride ahead and there seems to be no light on the horizon for Japan as of now." "Lets hope for the best," he summed up.
US Manufacturing PMI and Construction Spending are the only events on Monday
Today the US Manufacturing PMI is expected to drive the USD/JPY pair. The Manufacturing PMI is released by the Markit Economics, which captures business conditions in the manufacturing sector. As the manufacturing sector dominates a large part of total GDP, the Manufacturing PMI is an important indicator of business conditions and the overall economic condition in the United States. A separate PMI reading is also released by the Institute for Supply Management and tends to have a larger impact than the Markit's one. Another possible event will be the US Construction Spending, which is an indicator that measure the total amount of spending in the US on all types of construction. The residential construction component is useful for predicting future national new home sales and mortgage origination volume.USD/JPY struggles to recover from Friday's slump
The USD/JPY currency pair plunged on Friday for the two main reasons: the BoJ failing to deliver and the a lot weaker-than-expected US GDP figures. As a result, the pair reached a bottom of 102.00, erasing all gains for the previous three weeks. Downside risks persist, with the nearest significant area to limit the losses located only around 100.50, formed by the 50.0% Fibo, the weekly S1 and the Bollinger band, which prevented the pair from falling deeper down in the beginning of July. However, a correction is the base case scenario, but with gains most likely limited by the 103.00 mark, also reinforced by the weekly and the monthly PPs.On the hourly chart the USD/JPY currency pair is seen falling from the resistance trend-line down to the 102.00 major level on Friday, where support appears to have been met. Technically, the pair should rebound after such a sharp decline and keep appreciating until the down-trend is put to the test again around 104.00.
Hourly chart
Bulls remain in control, taking up 58% of the market (previously 57%). Meanwhile, the share of sell orders increased from 31 to 59%.
There is a small but nevertheless bullish bias among OANDA and Saxo Bank traders as well. In case of OANDA, 69% of positions opened by its clients are long. Similarly, 61% of positions opened by Saxo Bank traders are long as well, compared to 54% on Friday.
Spreads (avg, pip) / Trading volume / Volatility
Slightly more than a half expect the exchange rate to fall below 108.00 yen
Slightly more than half of the surveyed (52%) now assume that the US Dollar is to cost less than 108.00 yen after a three month time. The most popular choice, however, implies that the Greenback is to cost between 108.00 and 109.50 yen in three months, selected by 19% of the voters. According to the votes collected between July 01 and August 01, the mean forecast for November 01 is 106.46. At the same time, 18% of the surveyed believe the Greenback could cost more than 112.50 yen in three months.