- The share of purchase orders increased from 65 to 78%
- Today 73% of traders are long the Greenback (previously 63%)
- Nearest resistance rests around 123.02, represented by the weekly PP
- The closest support now lies at 122.53, namely the monthly PP
- 23% of traders expect the Greenback to cost between 126 and 127.5 yen in three months
- Upcoming events today: US Pending Home Sales, Japanese Average Cash Earnings
The US Dollar performed rather well on Friday, with exception against the Swiss Franc, as it declined 0.37% against it. Nonetheless, gains of 1.08% and 0.91% were detected against the Aussie and the Kiwi, respectively, following with a 0.30% gain versus the Euro and 0.18% versus the Yen. Furthermore, the Greenback remained relatively unchanged versus the Sterling, losing 0.02% and the Loonie, losing 0.06%.
US consumers' mood brightened at the end of the month, reinforcing the view the world's number one economy was likely to gather momentum in the foreseeable future. The University of Michigan's final reading of the consumer sentiment index increased to 96.1 points, compared with the markets' expectations for 94.6 and following a revised reading of 90.7 points in May. The final June reading was not only the second highest so far this year, but also marked the second best print since January 2007, as the gauge saw its strongest monthly increase since December 2013.
The breakdown of the data showed consumers' assessment of the current state of the economy improved markedly as did their outlook, while they expected prices to climb a bit slower in the coming months. The index of expected conditions recovered to 87.8 points after falling to the lowest level in six months of 84.2 in May. The gauge measuring current circumstances also came out near the highest levels of the recovery at 108.9 points, the 8.1 point increase seen in the sub-index in June was the biggest monthly advance in two-and-a-half years. In the next twelve months, households anticipate inflation to remain at 2.7%, a notch slower than what they had expected in May. The inflation expectations for the next five years declined to 2.6%.
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 Pending Home Sales
Monday there will be a release on the US Pending Home Sales, which is a leading indicator of economic health. The number of homes to be sold is forecasted to slow down significantly, resulting in USD weakness. However, risks of the Yen falling also persist, as the Greek debt crisis keeps bringing uncertainty into the market. Furthermore, early tomorrow morning the Japanese Average Cash Earnings are to have an impact on the USD/JPY during the Asian session. The share of Cash Earnings is expected to remain unchanged, compared to the previous month, indicating a risk of the data turning out worse-than-expected.
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 in tight range between 122 and 123
On Friday, upon reaching the weekly PP at 123.23, the USD/JPY managed to rebound. As a result, the US Dollar surged up to the 124 major level, but was unable to pierce through, as the weekly R1 was bolstering the area. Today the pair opened significantly lower, namely at 122.60, with risks of falling deeper down to 122. However, weakened Asian currencies might give room for the Buck to advance and retake the 123 psychological level. Technical studies are showing mixed signs, unable to confirm either scenario.Daily chart
On the hourly chart, the US Dollar is seen losing momentum since Wednesday. Last Friday's rally gave some hope, but the USD/JPY pair opened dramatically lower today and is now experiencing serious volatility. Nonetheless, if the Greenback manages to stabilise above the 123 major level, the next target would be the 200-hour SMA at 123.40.
Hourly chart
Bulls keep dominating the market
Both net positions and net orders improved. Today 73% of traders are long the Greenback (previously 63%), whereas the share of purchase orders increased from 65 to 78%.
OANDA and SAXO clients retain their bullish perspectives towards the Buck. The share of longs at OANDA edge up from 55 to 58%, while the SAXO Bank's sentiment slightly worsened, as 61% of their traders hold long positions.
Spreads (avg, pip) / Trading volume / Volatility
23% of traders expect the Greenback to cost between 126.00 and 127.50 yen in three months
According to the survey conducted between May 29 and June 29, 68% of the participants expect the US Dollar to cost more than 123 yen in three months. However, the mean forecast for September 29 is 124.92. Meanwhile, the 126.00-127.50 price interval received the largest amount votes, namely 23%, while the second choice is on the 124.50-126.00 price range, chosen by 14% of participants.