- Buy orders now take up 47% of the market
- Only 46% of positions are long today
- Nearest resistance rests at 123.63, represented by the 20-day SMA
- There seems to be relatively strong demand at 122.97
- 21% of traders expect the Greenback to cost between 126 and 127.5 yen in three months
- Upcoming events today: US PPI and Core PPI, US Preliminary UoM Consumer Sentiment
The US Dollar was one of the best-performing currencies on Thursday, as it appreciated against most major peers. The Kiwi suffered the most, as the Greenback gained 2.69% against it, following with 60% gains versus both, the Yen and the Euro. However, the Buck remained relatively unchanged against the Sterling, adding only 0.09%
US retail sales surged sharply in May and rose for the third month in a row, as households boosted purchases of automobiles and a range of other goods. The better-than expected data is likely to strengthen the Fed's confidence in the second quarter growth rebound. Retail sales climbed a seasonally adjusted 1.2% last month, the Commerce Department said. The increase in retail sales, which makes up as much as one-third of all consumer spending, provides more signs the economy has regained momentum after contracting in the first quarter. Yet sales may have also been boosted by the Memorial Day holiday that gave people an extended weekend in which to shop. The government's most recent growth estimate showed US economic output shrank at a 0.7% annual rate in the March quarter, but data on healthcare spending, together with revisions to construction spending, trade and wholesale inventory reports suggested GDP probably contracted at only a 0.1% rate.
Meanwhile, a separate report showed the number of Americans applying for first-time unemployment benefits increased slightly last week but remained at a historically low level, suggesting the economy continues to steadily create jobs. Initial jobless claims rose by 2,000 to a seasonally adjusted 279,000 in the week ended June 6, according to the Labor Department.
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."
US data pulling the strings
The US PPI is expected to show signs of growth again, compared to a -0.4% figures in the previous month. However, historical data shows that PPI turned out to be worse-than-expected in the past, thus, a similar situation might occur today. Nonetheless, if the data is positive, but fails to meet expectations – it is still a sign of economic growth and should not weigh down the Greenback too much. Moreover, later at 15:00 GMT there will be a data release on the Preliminary UoM Consumer Confidence, which accounts for a majority of overall economic activity. The Index is likely to improve from 90.7 to 91.3, strengthening the US currency and weighing on the 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 determined to reclaim 124
The US Dollar struggled again to surpass the 124 major level yesterday, as the 20-day SMA provided some resistance. Nevertheless, if the SMA is breached today, we should see the USD/JPY currency pair extends its rally above 124 and meet new resistance at 124.230, namely the weekly S1. Volatility might stretch out to 125, but the pair will be immediately pushed back due to the weekly PP supporting that level. Meanwhile, technical indicators are now showing bullish signs, bolstering the possibility of a positive outcome.
Daily chart
The US Dollar has been recovering since Wednesday's sharp plunge against the Yen. However, the 200-hour SMA remains out of reach, making the bullish trend uncertain. Since the middle of Thursday, the USD/JPY has been consolidating around 123.50, awaiting for a boost, which might be provided by today's fundamentals.
Hourly chart
Bears won over the majority
Traders keep losing confidence in the Buck, as only 46% of positions are long today. The number of buy orders broke out of the equilibrium; they now take up 47% of the market.
OANDA and SAXO clients retain their bullish perspectives towards the Buck. However, the share of longs at OANDA returned to its Wednesday's level of 55%, whereas the portion of bulls at SAXO Bank increased from 66 to 67%.
Spreads (avg, pip) / Trading volume / Volatility
21% of traders expect the Greenback to cost between 126 and 127.5 yen in three months
According to the survey conducted between May 12 and June 12, 67% of the participants expect the US Dollar to cost more than 123 yen in three months. However, the mean forecast for September 12 is 124.11. Meanwhile, the 126.00-127.50 price interval received the largest amount votes, namely 21%.
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.