- Share of buy orders reached 64%
- At the moment 62% of traders are bulls
- Resistance is the 200-hour SMA at 120.08
- Immediate support is the trend-line at 119.50
- 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: US Retail Sales (Aug), Core Retail Sales (Aug), Capacity Utilisation Rate (Aug), Industrial Production (Aug)
The US Dollar was neither among the worst performing nor among the best performing currencies yesterday. While AUD/USD surged 0.88%, the European currency gave up 0.29% of its worth in dollars.
Industrial output in Japan fell more than initially estimated in July, while the tertiary industry activity index, which tracks the change in the total value of services purchased by businesses, showed a slight growth over the same period. According to Ministry of Economy, Trade and Industry of Japan, industrial production dropped 0.8% on a monthly basis in July, revised from the 0.6% decrease reported earlier. On an annual basis, the gauge showed no variations in July, following the 2.3% gain in June. In the meantime, shipments contracted by 0.4% in July, revised from a 0.3% drop, while inventories went down 0.8% from the preceding month. In contrast, the production index rose 1.1% in June.
Meanwhile, the BoJ policymakers disagree the economy needs more monetary stimulus despite growing downside risks from slower overseas demand and volatile financial markets. The officials claim that it is still too early to abandon their recovery scenario and consider buying more assets, as the data for August economic activity is not available yet. The BoJ believes that the existing pace of monetary-base expansion by ¥80 trillion annually should be sufficient to support a modest economic recovery and raise inflation to around 2% by the middle of 2016.
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."
A lot of US releases, but risks contained because of Fed
Considering a plethora of high impact events today, Tuesday should an important day for USD/JPY, and we may expect increased levels of volatility, although we must also consider that the looming Fed decision is likely to have a negative effect on the activity of the major currency pairs. The main release is the change in the retail sales volume. Consensus forecast is slower growth than in July.
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 heads toward 118.50
USD/JPY failed to extend the latest rally from 118.50, and is therefore expected to come back to this month's low. The main resistance remains a combination of the monthly pivot point and 200-day SMA around the level of 121 yen, and for the time being this enforces a bearish outlook on the currency pair, even though the technical indicators are pointing north in the monthly time-frame.Daily chart
In the hourly chart USD/JPY is currently trading between two converging trend-lines, and we should expect a break-out in the next few days. Right now the price has a good opportunity to rebound from the rising support trend-line at 119.50 and negate at least some of the earlier losses. Resistance is the 200-hour SMA at 120.08.
Hourly chart
Share of bulls declines
OANDA traders became slightly more confident in bullishness of the Dollar. Now 59% (56% yesterday) of them are long. As for the SAXO Bank traders, they are now a little less certain in the ability of the the Buck to outperform the Yen, though the majority (56%) is still 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.
According to the latest survey, a majority (54.5%) of the Dukascopy Community members prefer to be short the Dollar against the Yen this week.
However, one of the poll participants, aslamhammad, reckons that "technically, price is trying to recover back to the highs", and expects the exchange rate to increase by the end of the week. On the other hand, csan86 notes that "there is a huge double bottom on weekly and daily chart, so there is a high possibility for a breakout from the triangle pattern on the downside", in which case he expects "more bearish movement at least to the 116.150 area".