- Ratio of buy and sell orders is now equal to one
- Slightly less traders have a positive outlook towards the Buck today, namely 52%
- Nearest resistance rests around 123.79, represented by the weekly PP
- There still 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: FOMC Economic Projections, FOMC Statement, Federal Funds Rate, FOMC Press Conference
The US Dollar experienced mixed performance over Tuesday. Gains of 0.32% and 0.29% were recorded against the Euro and the Swiss Franc, respectively. The Greenback also added 0.17% against the Aussie and 0.15% versus the Kiwi, whereas the Buck also declined 0.31% against the Sterling and 0.24% versus the Loonie. However, the US currency remained relatively unchanged against the Yen, losing only 0.05%.
US housing starts declined in May following a hefty increase the preceding month. However, a surge in building permits to a near the highest level in eight years suggested the pullback was temporary and indicated underlying strength in housing. Construction started on new homes plunged 11.1% to an annual rate of 1.04 million in May, following an upwardly revised April's figure of 1.17 million-unit rate, the highest since November 2007. The median estimate of economists called for 1.09 million. Starts for single-family homes dropped 5.4% to an annual rate of 680,000, while starts in buildings with at least five units plummeted 18.5% to a pace of 349,000.
However, permits for future construction surged 11.8%, the most since December 2010, climbing to 1.275 million last month. Much of the increase was attributed to the multi-family component, with permits soaring 26% to 557,000 to the highest level since January 1990, while single-family permits rose 2.6% to 683,000. Economists predict that the housing market strength will take up some of the slack of the struggling manufacturing sector and support economic growth this year. Earlier in the week, the National Association of Home Builders' reading on builders' confidence rose to the highest level since the end of the Great Recession, adding to signs residential investment should continue to improve.
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."
FOMC Meeting
With the Japanese Trade Balance showing a wider gap than in the previous month, the US Dollar received a boost in early trade today. Later today we expect the FOMC Economic Projections to give some insight on inflation and economic growth in the US for the next two years. Moreover, the FOMC Statement is to be watched closely, as the interest rate hike decision is anticipated to be revealed today. If uncertainty is to be faded, the US Dollar will most likely appreciated against most major peers, including 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 keeps trying to reclaim the 124 level
Even though the USD/JPY reached the resistance cluster around 123.85, the pair was unable to maintain trade at that level. As a result, the exchange rate retreated, making the daily change almost disappear. Since the beginning of the week the Greenback was struggling to pierce through the weekly PP, but today we might see the level taken. The US Dollar is likely to at least reach the 124 major level, while risks of falling back under 123 also exist. Meanwhile, technical studies retain their mixed signals, unable to confirm either scenario.
Daily chart
The US Dollar failed to bounce back from the possible support trend-line, as It extended its consolidation through the day. However, a boost is still likely to occur by the end of Wednesday, and the 200-hour SMA to be pierced. Once the USD/JPY stabilises above the 124 level, we might see more growth in the upcoming week.
Hourly chart
Bulls keep losing ground little by little
Slightly less traders have a positive outlook towards the Buck today, namely 52%, whereas the ration of buy and sell orders is now equal to one.
OANDA and SAXO clients retain their bullish perspectives towards the Buck. The share of longs at OANDA dropped from 58% to 56%, while the SAXO Bank's sentiment improved, adding two percentage points to 68%.
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 17 and June 17, 69% of the participants expect the US Dollar to cost more than 123 yen in three months. However, the mean forecast for September 17 is 124.48. Meanwhile, the 126.00-127.50 price interval received the largest amount votes, namely 22%.
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%.
The end of the current week is forecasted to bring some important fundamental data, namely the official monetary policy statement by the Policy Board of the Bank of Japan on Friday, which may have a considerable impact on pair's perspectives. From the American side, traders could pay additional attention, to Fed's interest rate decision on Wednesday and release of the consumer price index by the end of the week. In overall the traders are pretty much undecided on pair's future development, as trader's votes divided almost equally.
A trader with a bullish perspective towards the USD/JPY, WallStreet6, says that "with the Fed meeting up ahead and positive data coming from the US economy, I think that we will hear some statement on earlier than expected rate hike and the USD should strengthen further." However, Rokasltu, another Dukascopy community member, expects the US Dollar to decline versus the Yen. "In my opinion, USD/JPY might go down, due to quite good latest economic results from Japan".
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