- The number of buy orders edged up from 47 to 54%
- The majority of traders now have a positive outlook towards the Buck, namely 55%
- Nearest resistance rests at 123.80, represented by the 20-day SMA and weekly PP
- There seems to be relatively strong demand at 122.53
- 22% of traders expect the Greenback to cost between 126 and 127.5 yen in three months
- Upcoming events today: US Capacity Utilization Rate, US Industrial Production, US NAHB Housing Market Index, US Empire State Manufacturing Index
The Greenback experienced mixed performance on Friday, as It appreciated against some major peers and declined against the others. Gains of 0.36%, 0.32% and 0.24% were recorded against the Kiwi, the Aussie and the Loonie, respectively. The Buck suffered a 0.46% loss against the Swissie and a 0.29% decline versus the Pound, whereas the US Dollar remained relatively unchanged against the Yen (-0.02%).
Prices of finished goods and services sold by manufacturers in the US jumped 0.5% in May of this year, while exceeding the average economists' estimates of a 0.4% increase. This data follows four straight months of missing expectations, when three of them posted a decline. Therefore, the May numbers are pointing to a considerable improvement is sentiment among producers, which are favouring to increase prices, as the world's biggest economy is getting back on track. In the meantime, the annual indicator for producer prices decreased from 1.3% to 1.1% in May, matching expectations. The core reading, which excludes volatile items, such as food, energy and trade, was up just 0.1% last month on a monthly basis and 0.6% year-on-year, also swinging back to growth.
The producer prices are usually passed to consumer in the foreseeable future, meaning that the headline CPI is likely to show a positive development as well. The latter gauge is closely watched by the Federal Reserve, which is preparing for a first benchmark rate's hike later this year. Consensus forecast is September 2015; however, analysts' views diverge on the timing of this event. Meanwhile, the Fed is also tracking the labour market changes, and the rate of unemployment will play a decisive role, when making the step of raising rates for the first time since 2006.
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 fundamentals taking the matter into their own hands
Today no relevant data releases concerning the Japanese economy are expected. Nonetheless, a number of US releases are due later in the day. All of the figures are likely to improve compared to their previous values, but the most important one is, probably, the US Industrial Production. The Factory Output rate is expected to rebound from -0.3% to 0.2%, thus showing signs of improvement and boosting the American Dollar. Another data release with a rather significant anticipated improvement is the Empire State Manufacturing Index, which should rise from 3.1 to 5.8, indicating more economic health in the US.
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 inches closer to 124 again
Last Friday, the US Dollar fell under pressure again, despite good fundamental data. The USD/JPY failed to breach the 20-day SMA at 123.61, which pushed the given pair 21 pips down. Nevertheless, the Greenback is likely to climb up today, as technical studies suggest. A serious obstacle rests around 123.80, represented by the weekly pivot point and the 20-day SMA, creating good chances of limiting the gains just like on Friday.
Daily chart
Although the US Dollar appeared to have started recovering after a huge decline last Wednesday, the resistance trend-line stopped the USD/JPY from advancing on several occasions afterwards. However, the gap between the currency exchange rate and the 200-hour SMA is narrowing, suggesting that the trend-line is likely to be pierced in the near-term.
Hourly chart
Bulls took over the market
Market sentiment received a boost, as the majority of traders now have a positive outlook towards the Buck, namely 55%. The number of buy orders also edged up, from 47 to 54%.
OANDA and SAXO clients retain their bullish perspectives towards the Buck. The share of longs at OANDA and SAXO Bank remains unchanged, with 55% and 67%, respectively.
Spreads (avg, pip) / Trading volume / Volatility
22% of traders expect the Greenback to cost between 126 and 127.5 yen in three months
According to the survey conducted between May 15 and June 15, 70% of the participants expect the US Dollar to cost more than 123 yen in three months. However, the mean forecast for September 15 is 124.6. Meanwhile, the 126.00-127.50 price interval received the largest amount votes, namely 22%.