- 69% of all orders are to buy the Buck
- Bullish traders' sentiment remains unchanged at 74%
- Immediate resistance is represented by the weekly R1 at 124.30
- The closest support is located at 123.93, namely weekly PP
- 24% of traders expect the Greenback to cost between 124.50 and 126.00 yen in three months
- Upcoming events today: US Chicago PMI, US Employment Cost Index, US Revised UoM Consumer Sentiment
The US currency was one of the best-performing currencies on Thursday, as it appreciated against most major peers, with exception against the Sterling. The Buck added 0.73% versus the Kiwi, following with a 0.42% gain against the Loonie and 0.38% versus the Euro. The Greenback remained relatively unchanged against the Yen, the Swissie and the Aussie, adding 0.10%, 0.09% and 0.01%, respectively. Furthermore, the US Dollar lost only 0.02% against the British Pound.
US economic growth accelerated in the April-June quarter as an increase in consumer spending offset the drag from weak business spending on equipment. The US GDP rose a 2.3% annual rate, according to the Commerce Department, while the first-quarter economic output was revised to show a growth of 0.6%, up from a negative 0.2%. The revision to first-quarter growth reflected steps taken by the government to refine the seasonal adjustment for some components of GDP, which economists said left residual seasonality in the data, as well as new source data. Growth in the second quarter was boosted by consumer spending, which grew at a 2.9% rate from a downwardly revised 1.8% pace in the first quarter. Earlier this week the Fed described the economy as growing "moderately", while revising its view of the labour market upwards and saying housing had shown "additional" improvement. The Fed's assessment left the door open for a possible interest rate hike in September, which would be the first rise since 2006.
Meanwhile, the number of US workers applying for jobless benefits last week increased from a four-decade low, but the broader trend indicates the labour market is strengthening. Initial jobless claims rose by 12,000 to a seasonally adjusted 267,000 in the week ended July 25, the Labor Department said. The four-week moving average of claims, which smooths week-to-week volatility, declined 3,750 to 274,750 last week.
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 Revised UoM Consumer Sentiment
With no further economic data releases concerning the Japanese currency, attention should be paid to the US side. Although there will not be any high-impact events, a number of medium ones are likely to influence the USD/JPY. The US Employment Cost change is forecasted to deteriorate slightly, while the Chicago PMI, on the contrary, to improve. Despite this mixed data expectations, the most important release will be the Revised UoM Consumer Sentiment. The Consumer Sentiment is also forecasted to improve and it even showed better-than-expected figures during most of the releases in 2015. As a result, we could still see the Yen advance against the US Dollar.
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 preserve the bullish trend
The US Dollar reached a daily high of 124.60 against the Yen yesterday, but was instantly pushed back down, where it stabilised at 124.07. Although the gains were not as large as anticipated, the 124.00 major level was still retaken. Technical indicators retain their bullish signals today, suggesting the Greenback is to extend its rally. Even though the weekly R1 resistance could be reached today, the Buck could still suffer losses and declined towards 123.63. Furthermore, the weekly PP might also play its part and provide sufficient support, causing the USD/JPY to inch higher by day's end.Daily chart
After reaching a weekly high of 124.60, the USSD/JPY lost its bullish momentum. Even though the US Dollar edged closer to the 200-hour SMA and managed to rebound, risks of inching lower still persist. The Greenback might still meet resistance and bounce back to 124.00.
Hourly chart
Bulls still prevailing over bears
OANDA and SAXO clients retain their bullish perspectives towards the Buck. The share of bulls at OANDA slightly weakened to 57%, whereas 61% of SAXO Group clients retain a positive outlook towards the Greenback, up from 59%.
Spreads (avg, pip) / Trading volume / Volatility
24% of traders expect the Greenback to cost between 124.50 and 126.00 yen in three months
According to the survey conducted between June 31 and July 31, 65% of the participants expect the US Dollar to cost more than 123 yen in three months. However, the mean forecast for October 31 is 124.1. Meanwhile, the 124.50-126.00 price interval received the largest amount of votes, chosen by 24% of all poll participants, while the second largest choices, both selected by 12% of the surveyed, imply that the US Dollar will cost between either 117.00 and 118.50 yen or between 126.00 and 127.50 yen after three months.
This week traders' expectations changed notably, as now 71% of Dukascopy Community members estimate the pair to gain in value.
Tommaso, a trader with a positive outlook towards the USD/JPY currency pair, assumes that the June's correction seems finished and the pair looks ready to reach higher targets. "Probably during the next week the pair could reach 124.50 level", he said. Nevertheless, another poll participant, Direct, is short the Greenback. He expects the given pair to edge closer to the 55-day SMA, which implies that the Buck is to weaken against the Japanese Yen.