USD/JPY struggles to overcome 123 area

Source: Dukascopy Bank SA
  • The number of buy orders decreased from 71 to 62%
  • Long positions now take up 56% of the market
  • Closest resistance is the cluster around 123.07, represented by the Monthly R3 and weekly R2
  • From below the price is supported by the Bollinger band at 122.80
  • 64% of traders see USD/JPY above 120 yen in three months
  • Upcoming events today: G7 Meeting, Japanese Retail Sales, FOMC Member Williams Speech, US Unemployment Claims, US Pending Home Sales, US Crude Oil Inventories

© Dukascopy Bank SA
The US Dollar retains its title of one of the best-performing currencies. Greenback appreciated against most major peers, with the largest gain of 1.27% recorded against the Yen. The Buck also gained 1.15% versus both, the Aussie and the Kiwi, while the Sterling was the toughest, as the Buck only added 0.57% against it. US core durable goods orders rose more than expected in April, increasing 0.5%, surpassing economists' median forecast for a 0.3% gain, and compared with an upwardly revised March figure of 0.6%. Meanwhile, total durable goods orders pulled down 0.5% in April, in line with expectation.

US services sector activity slowed for the third consecutive month in May, with the headline indicator booking the lowest level since January. According to Markit, its preliminary services PMI declined to 56.4 in May, compared with the final reading of 57.4 in the previous month. The services sector is an important part of the US economy, as services account for more than 79% of the nation's private-sector GDP. Service jobs make up more than 80% of America's private-sector employment. The Markit data suggest annual GDP growth could accelerate to around 3% in the second quarter, while the economy adds around 200,000 jobs a month. Meanwhile, the mood among Americans slightly improved in May, with the headline measure climbing closer to its recent multi-year peak. The Conference Board's index of consumer confidence rose to 95.4 in May from a revised reading of 94.3 the month before. Data suggest that US consumers improved their short-term outlook for both employment and income prospects.

Sean Yokota, head of Asia Strategy at SEB, said that "if you look at Japan's public debt, which is about 243% of GDP, which is also one of the largest in the world." The economist 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. Moreover, 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."

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G7 Meeting, Japanese Retail Sales and US Jobless Claims



The only even that concerns both, the Japanese and US economy is the G7 Meeting today, where the leaders will discuss the global economic growth as well as foreign, security and development policies. Tomorrow, however, the US Unemployment Claims are likely to decrease, while the Retail Sales in Japan are expected to rebound from -9.7% to 5.4%. Both data releases prospect to strengthen their countries' currencies, but if the Japanese Retail Sails succeed to meet the expectations, the US Dollar is likely to be pressured down.

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.



USD/JPY struggles to overcome 123 area

On Tuesday, the US Dollar skyrocketed and crossed the two closest resistance clusters. During the trading session the Greenback managed to reach the 2007 high, but was pushed back and, eventually, closed trade at the 123 psychological level. Technical indicators are showing bullish signs, suggesting the USD/JPY will surge again. However, a strong resistance cluster lies on the way around 123.10, which might force the pair to bounce back, as the Buck already failed to pierce the 2007 high again today.


Daily chart
© Dukascopy Bank SA

The USD/JPY maintains the bullish trend, as the December 2014 high was easily overcome yesterday. The pair soared even above the 123 psychological level, where it met some resistance and started consolidating, awaiting for more stimulus to push the pair in either direction.

Hourly chart
© Dukascopy Bank SA


Bullish sentiment keeps weakening

Long positions lost one more percentage point, now taking up 56% of the market. The number of buy orders also decreased, from 71 to 62%.

The market participants at other brokers appear to be less bullish on USD/JPY. Still only 53% of OANDA's traders are long the Buck. SAXO Bank traders, however, are more optimistic towards the Greenback, being that 58% of their positions are still long.














Spreads (avg, pip) / Trading volume / Volatility


Almost two thirds see USD/JPY above 120 yen in three months

© Dukascopy Bank SA

The surveyed traders are mostly bullish on the Dollar. According to the latest data, 64% of them expect the US currency to cost more than 120 yen after three months. Nevertheless, the largest concentration of answers lies between 123.00 and 124.50, namely 19% them. Meanwhile, the average of the three-month forecasts collected between Apr 27 and May 27 is 121.03.


The sentiment among Dukascopy traders is rather strong for this currency pair, as the average expectation for the end of this week is located around 119.9 level, while 66% of all votes are currently bullish.

A trader with a bullish outlook towards the USD/JPY, rokasltu, mentioned that the pair moved in a strong bullish mode in the last days. He also said that "strong bullish daily candles and the weekly close near 2014-2015 high is so important", suggesting that this indicates that the pair is to have a strong up-trend in the near future. However, khalidamassi, a strider with a bearish outlook, thinks that the Greenbakc advanced too fast against the Yen, and that a correction should take place around 120.
© Dukascopy Bank SA

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