- The buy commands now take up 73% of the market
- Bullish market sentiment remains unchanged at 54%
- Closest resistance is located at 125.32, the weekly R1
- From below the price is supported by the weekly PP at 123.38
- 14% of traders assume the US Dollar will cost between 123 and 124.5 yen in three months
- Upcoming events today: US Jobless Claims, US Revised Nonfarm Productivity
Meanwhile, the US trade gap narrowed in April, easing one of the biggest drags on economic growth during the beginning of the year. The trade deficit contracted by 19.2% to a seasonally adjusted $40.88 billion in April, according to the Commerce Department. That was the sharpest drop in more than six years. In April, imports plummeted 3.3% to $230.78 billion, whereas exports increased 1% from March to $189.91 billion.
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."
US Jobless Claims
As usual, there will be no significant data releases concerning the Japanese economy today, but the US Unemployment Claims, due later today, are anticipated to slightly decrease, showing good signs for the US economy and, thus, boosting the US Dollar. However, the change in Jobless Claims is likely to be insignificant and, therefore, the impact on the Buck not as high, but still enough to outperform the Japanese Yen.
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 gives another shot at settling over 125
The 124 psychological level provided enough support to cause the US Dollar to rebound yesterday. Although the Greenback did bounce back and pierce through the 2007 high yesterday, it was still unable to reach the target level of 125. The USD/JPY stabilised at 124.30; however, the pair is likely to climb up again today and attempt to reclaim the 125 psychological area. The weekly R1 retains its role as the closest resistance, but remains out of reach. Meanwhile, technical studies keep showing bullish signs, bolstering the positive outcome.
Daily chart
The USD/JPY bounced back from the 123.80 area several times, before regaining bullish momentum and crossing over the 2007 high once again. The pair remains volatile, anchored around the 124.15 (2007 high), unable to shift significantly in either direction. The uptrend movement is so slow, that it looks more as if the Buck was consolidating for the past week.
Hourly chart
Bulls still prevailing over bears
Bullish market sentiment remains unchanged at 54%, whereas the share of purchase orders added 18 percentage points. The commands now take up 73% of the market.
The market participants at other brokers appear to be more bullish on USD/JPY, except for OANDA traders; their bullish sentiment remained at 52%. Meanwhile, SAXO Bank traders are even more optimistic towards the Greenback, being that 64% of their positions are long.
Spreads (avg, pip) / Trading volume / Volatility
14% of traders assume the US Dollar will cost between 123 and 124.5 yen in three months
The mean forecast for September 4 is 121.73, however, the majority (63%) still expect the US Dollar to cost more than 120 yen within a three-month period. The most popular price range remains between 123.00 and 124.50 yen, voted for by 14% of participants. The second most popular choices are divided between 115.50-117.00 and 126.00-127.50 price intervals, both selected by 13% of the surveyed.
This week Dukascopy Community members predict the pair advance further, as bullish side of the votes picked up to 83.3%, meaning that the appreciation of the Japanese currency will continue.
With the vast majority of traders being long the USD/JPY, there are those who oppose the opinion of the many. A trader with a bearish perspective, defka, assumes the given currency pair will decline, as it "broke through multi-month highs, thus a pullback could drive it back down." One of the bullish traders, rokasltu, suggests that last week showed that USD/JPY still has upside potential", therefore he expects the US Dollar to settle above the 125 mark by the end of the week.