- The number of buy commands remains unchanged at 65%
- 63% of positions are long today
- Nearest resistance rests around 123.73, represented by the 20-day SMA
- The closest support now lies at 123.23, namely the weekly PP
- 21% of traders expect the Greenback to cost between 126 and 127.5 yen in three months
- Upcoming events today: US Revised UoM Consumer Sentiment, US Revised UoM Inflation Expectations, Japanese Retail Sales
The US Dollar experienced mixed performance, declined against most major peers, with exception against the Swissie and the Euro. The Buck lost the most against the Aussie and the Loonie, 0.44% versus both, following with a 0.25% decline also versus both the Kiwi and the Yen. However, the Greenback appreciated 0.33% against the Swiss Franc and remained unchanged versus the Euro.
The number of Americans, who applied for unemployment assistance in the week ended June, rose but remained at a level consistent with a strengthening labour market. According to the US Department of Labor, US initial jobless claims increased by 3,000 to a seasonally adjusted 271,000, up from a revised 268,000 in the preceding week. Initial unemployment claims have held below the 300,000-level for 16 straight weeks, which is associated with a improving labour market. The four-week moving average came in at 273,750, a drop of 3,250 from the previous week's total of 277,000. The monthly average is seen as a more accurate indicator of labour trends as it irons out volatility in the week-to-week data.
Meanwhile, a separate report showed US inflation remained below the Fed's 2% annual goal in May. The personal consumption expenditures price index, which is the Fed's preferred inflation gauge, climbed 0.2% in May from a year earlier. The indicator has undershot the central bank's target for 37 consecutive months, the longest stretch since the first half of 1960s. Excluding the volatile components of food and energy, prices increased 1.2% in May from a year earlier, falling from revised annual gains of 1.3% in April and 1.4% in March. Core inflation in May recorded its smallest annual growth since February 2014. Overall prices edged higher by 0.3% in May from the prior month, while core prices climbed 0.1% from April.
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 Revised UoM Consumer Sentiment
Early today a number of Japanese data releases showed better-than-expected figures, while others met expectations. As a result, the Yen weighed on the US Dollar, but we still are expecting the US Revised UoM Consumer Sentiment later today. The Sentiment is forecasted to remain unchanged, although according to the historical data, there is a slim chance of the data failing to meet expectations. Ultimately, the Yen is still likely to outperform the Greenback and we should see the exchange rate close lower. Furthermore, on Monday we should pay attention to the Japanese Retail Sales data, which will be one of the main triggers during that day.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.
Steve Lucas, technical analyst at 3CANALYSIS, gives their perspectives on the USD/JPY currency pair. "We have persistently been bullish of USD/JPY, but in the very short-term we think there will be a pullback", he said. Steve explained their view by mentioning that since the pair posted the 12.5 year high in June, last week put in a bearish reversal candle, which is a negative signal. "We also think that the deception out there is that the Fed is going to be a little easier on raising interest rates and people are going to be a bit cautious and a bit sensible and take the money off the table", the analyst added.
USD/JPY takes another crack at 123
The USD/JPY did fall yesterday, but not as much as anticipated. The pair failed to reach the support at 123.23 and closed trade even higher at 123.59. However, the Greenback is expected to fall under more pressure today, while technical studies are showing mixed signs. The target remains the 123.23 level, namely the weekly PP, a decline to 123 psychological level is also possible if the US fundamentals disappoint.Daily chart
On the hourly chart we can see that the USD/JPY experienced a sell-off in the middle of the week, after reaching a weekly high of 124.38. Yesterday, the US Dollar also experienced weakness, but the 200-hour SMA provided sufficient support to prevent a deeper fall. However, during the hourly hours today the given currency pair dropped under the SMA and now struggling to get back up.
Hourly chart
Bulls keep dominating the market
Bulls keep gaining ground, as 63% of positions are long today, compared to 62% yesterday. The number of buy commands remained unchanged at 65%.
OANDA and SAXO clients retain their bullish perspectives towards the Buck. The share of longs at OANDA edge up from 54 to 55%, while the SAXO Bank's sentiment improved, as 64% of their traders hold long positions.
Spreads (avg, pip) / Trading volume / Volatility
21% of traders expect the Greenback to cost between 126.00 and 127.50 yen in three months
According to the survey conducted between May 26 and June 26, 68% of the participants expect the US Dollar to cost more than 123 yen in three months. However, the mean forecast for September 26 is 124.91. Meanwhile, the 126.00-127.50 price interval received the largest amount votes, namely 21%, while the second choice is on the 124.50-126.00 price range, chosen by 15% of participants.
The middle of the current week is forecasted to bring some important fundamental data, namely the US Q1 Gross Domestic Product as well as Q1 personal consumption expenditures prices on Wednesday. From the Japanese side, traders could pay additional attention, to the unemployment rate, overall household spending and national core CPI. These data are expected to be announced on Thursday. Traders, however, are equally divided between bulls and bears.
Jignesh, one of the Dukascopy community members, expects the US Dollar to edge higher against the Yen by the end of the week. "The US Dollar is very well supported this week as the index is showing reversal signs around a key retracement", he said. Jignesh assumes the pair will resume its uptrend, as it has been in one of the longest uptrends amongst the majors. Aslamhammad, on the other hand, has a bearish view on the USD/JPY, as the price is moving sideways, in his opinion, and should close around 121.50.