- 53% of orders are set to sell the Dollar against the Yen
- 64% of positions are long
- Resistance is the Sep 10 high at 121.30
- Closest support is represented by the 200-hour SMA at 120.10
- 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 on Tuesday: BoJ Monetary Policy Statement and Press Conference, US Retail Sales, Core Retail Sales, Capacity Utilisation Rate, Industrial Production
Along with the Yen, Loonie and Sterling, the US Dollar was among the worst performers on Friday. The currency became 0.54 and 0.44% cheaper in terms of euros and Swiss francs, respectively.
US producer prices remained flat last month, suggesting benign inflation pressures that could impact the Fed's decision whether to hike rates this week. The unchanged reading of PPI in August followed the 0.2% increase in July, according to the Labor Department. Excluding the volatile food and energy components, core prices climbed 0.3% in August, the same pace as in the previous two months. However, much of that increase was due to an increase in the volatile trade-services category. In the 12 months through August, producer prices dropped 0.8% following a similar fall in July. It was the seventh consecutive 12-month decrease in the index.
A separate report showed US consumer sentiment dropped to the lowest level in a year in September, as it was possibly undermined by recent stock market volatility amid worries over China's economic slowdown. According to the University of Michigan, US consumer sentiment index decreased to 85.7 early this month, hitting the lowest level since September last year, from a reading of 91.9 in August. The survey's measure of consumer expectations also declined to a one-year low, as households expected slower growth in overseas economies to hit the US economy. Moreover, consumers' expectations for current and future personal finances also took a knock.
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 mentioned that such measures put Japan into recession, but also gave a bit of confidence to people; that this time when you increase the taxes, it does hit you in the short term, but you can eventually 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."
Tuesday crowded with high impact events
Tomorrow will be an important day for USD/JPY, and we should expect increased levels of volatility. During the Asian trading hours he turbulence should be ignited by the BoJ Monetary Policy Statement and press conference. In the afternoon activity is expected to grown even further, mainly because of the high impact report on the US retail sales.
Marcel Thieliant, economist from Capital Economics, forecasts USD/JPY to be at 130 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 his perspective 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". Steve explains the forecast by mentioning that after the pair posted the 12.5-year high in June, there is now a negative signal in the form of a bearish reversal candle. "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: another failure at 121
The current situation in USD/JPY does not seem to warrant a long position. The monthly pivot point together with the 200-day SMA repeatedly prevented emergence of a sustainable rally, meaning the price is likely to return back into the 119-118.50 region during the next few weeks. The immediate support level is at 120.30/26. In the meantime, in case the US Dollar manages to jump over the monthly PP and 200-day SMA, the currency will have a good chance to re-test the recently broken trend-line at 122.50.Daily chart
The currency pair started the week on a bearish note, and there is a high probability the bears will keep pushing the price further south. We may expect a bullish reaction in the vicinity of the 200-hour SMA at 120.10, but afterwards there is likely to be an extension of the dip down to the upward-sloping support trend-line at 119.50.
Hourly chart
Being long is popular
SAXO Bank traders are a little less bullish. Right now 60% of them are holding long positions. Meanwhile, sentiment among OANDA traders borders on becoming neutral, as 56% of positions are currently long.
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.