- No gap between the buy and sell orders
- SWFX traders' sentiment towards USD/JPY stays neutral
- A quick recovery above 124.30 is unlikely
- There seems to be relatively strong demand at 122.60/50
- 19% of traders expect the Greenback to cost between 126 and 127.5 yen in three months
- Upcoming events today: US Retail Sales, Unemployment Claims, Import Prices, Business Inventories
Though there were no explicitly negative events, the US Dollar was able to outperform only one currency, the Swiss Franc, and by mere 0.08%. Against the Japanese Yen the Greenback lost as much as 1.34%.
A survey conducted among Japan's large-scale factories showed a strong deterioration in the nation's manufacturing activity in the second quarter. However, a solid recovery was anticipated in the upcoming quarter. The Business Survey Index plunged from 2.4 in the March quarter to -6.0 in the reported period. A reading above zero signals optimism, while a negative reading indicates pessimism. Businesses surveyed evaluated domestic economic conditions as less favourable in the three months through June than in the previous quarter. Nevertheless, they predicted to see an amelioration in the following quarter. Employment conditions were also weaker this quarter, compared with the March quarter, but were predicted to weaken further in the following two quarters. Sales and ordinary profits were seen accelerating in the second half of fiscal 2015, but investment plans were expected to moderate sharply.
Earlier in the week, the data showed the world's third biggest economy grew an annualized 3.9%, compared with the 2.4% pace initially reported. Measured on a quarterly basis, the Japanese economy added 1%, compared with the initial estimate of a 0.6% increase. Strong private demand in residential and corporate spending were the main upside contributors.
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."
Thursday dominated by US data
The period around 12:30 GMT promises to be volatile, considering the number and importance of the scheduled events. Apart from the usual Unemployment Claims, which are expected to stay more or less the same, we also have two releases on the Retail Sales. Both the core and the headline figures are expected to rise considerably. Additionally, Import Prices are expected to advance after the negative 0.3% change a month earlier.
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 underpinned by monthly pivot
USD/JPY remains under considerable pressure after it failed to surpass 126 (monthly R1). The pair is showing signs of stabilisation around 122.50 (monthly PP), but we should not rule out a deeper decline before the bulls fully recover. The dip may well extend down to 121 yen, namely to the support trend-line and 55-day SMA. Demand should not let the price fall much farther than that, considering there is the monthly S1 and 100-day SMA at 120.50.
Daily chart
As it turned out in the end, the 200-hour SMA was not enough to keep USD/JPY afloat. However, as mentioned earlier, there seems to be relatively strong demand at 122.60/50, which triggered a rally. The latest gains may thus be erased, but a quick recovery above 124.30 is unlikely, unless there are positive fundamental surprises.
Hourly chart
Sentiment neutral
SWFX traders' sentiment towards USD/JPY stays neutral, being that the difference between the shares of long (53%) and short (47%) positions is smaller than 10 percentage points. At the same time, there is no gap between the buy and sell orders at all.
On the other hand, OANDA and SAXO clients enhanced their exposures to the US Dollar before some of this week's major releases. The share of longs at OANDA went up from 55 to 59%. At the same time, the portion of bulls at SAXO Bank increased from 63 to 66%.
Spreads (avg, pip) / Trading volume / Volatility
19% of traders expect the Greenback to cost between 126 and 127.5 yen in three months
According to the survey conducted between May 10 and June 10, 60% of the participants expect the US Dollar to cost more than 123 yen in three months. However, the mean forecast for September 10 is 122.87. Meanwhile, the 126.00-127.50 price interval received the largest amount votes, namely 19%.
Traders are getting less optimistic about the pair, as the proportion of optimists slipped to 70% this week from almost 84% a week earlier. The consensus forecast stands however, for 124.8.
One of the community members, Jignesh, shares his view on the USD/JPY. He mentioned that the pair is in a breakout mode after breaking the 2015 highs and it can continue to take this bullish momentum to break higher throughout the week. However, there are also those with a bearish outlook towards the given currency pair. Nuki 1981, for example, expects the Greenback to decline against the Yen, unless the pair will be able to break through an important resistance level at 126.00.