- 68% of commands are now to acquire the US currency
- 74% of traders hold long positions (previously 72%)
- Nearest resistance rests around 123.02, represented by the weekly PP
- The closest support now lies around 122.20, namely the Bollinger band and 55-day SMA
- 21% of traders expect the Greenback to cost between 126 and 127.5 yen in three months
- Upcoming events today: US ADP Non-Farm Employment Change, US Final and ISM Manufacturing PMI, US Crude Oil Inventories, US Construction Spending
The Greenback was one of the best performing currencies on Tuesday, as it appreciated against most major peers. Gains were rather steady versus all currencies, with exception against the Kiwi, as the Buck added only 0.29% against it. The US Dollar advanced the most versus the Swissie (0.61%), the Sterling (0.60%) and the Euro (0.59%), following with slightly lesser gains of 0.55% versus the Loonie and 0.50% against both the Yen and the Aussie.
US consumer confidence rose solidly last month as Americans felt much more upbeat about the nation's economy and labour market, reinforcing the view the world's number one economy was back on track after a shaky start to the year. According to the Conference Board, the index of consumer confidence increased to 101.4 in June, up from a revised 94.6 a month earlier. The survey results showed households grew more optimistic about the jobs market. The share of Americans who said jobs were hard-to-get declined to 25.7%, compared with 27.2% in May. While the share of those who viewed jobs were plentiful climbed to 21.4% in the reported month, up from 20.6% in May, supporting the view of tightening labour market conditions. In addition to that, the current situation index, a gauge of households' assessment of current economic conditions, soared to 111.6 from a revised 107.1 a month earlier. Consumers' expectations for economic activity over the coming six months surged to 94.6 from 86.2.
Meanwhile, a separate release showed single-family home prices increased in April, albeit at a slower pace, easing concerns rising home values will undermine affordability for first-time buyers. The S&P/Case Shiller composite index in April climbed 4.9% in April from a year ago. The year-on-year rate of appreciation slowed a bit from 5.0% in March.
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 ADP Non-Farm Employment Change and ISM Manufacturing PMI
Despite good Tankan Manufacturing Index the Yen is still being outperformed by the US Dollar. Today the most effect on the USD/JPY should have the ADP Non-Farm Employment Change and the ISM Manufacturing PMI. Both these figures are forecasted to increase, thus, showing good signs of more economic health in the States. Since the Japanese fundamentals are being ignored by the market, further growth or decline of the given currency pair will be determined by the US fundamentals later today. Even if the figures turn out to be slightly less than the ones forecasted, the Buck will most likely still advance against the Japanese 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.
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 sets eye on 123
Upon reaching the 122 psychological level, the USD/JPY currency pair was pushed back; however, the Buck still failed to close higher. Ultimately, the Greenback settled at 122.52, giving hopes of a rebound today. Technical studies retain mixed signs, but unless the US fundamental data disappoints, we should see the US Dollar outperform the Yen. Nonetheless, a strong resistance, namely the weekly PP and the 123 major level, is likely to limit the gains.Daily chart
Although risks of falling under the 122 psychological level persisted yesterday, the US Dollar managed to rebound after several attempts of breaching the level. However, the USD/JPY could not appreciate beyond the 122.60 area until today. The next target now is the 123 major level and possibly the 123.20, namely the 200-hour SMA, if the fundamental does not disappoint.
Hourly chart
Bulls keep dominating the market
Both net positions and net orders improved. Currently 74% of traders hold long positions (previously 72%), while 68% of commands are now to acquire the US currency.
OANDA and SAXO clients retain their bullish perspectives towards the Buck. The share of longs at OANDA edge up from 59 to 61%, while the SAXO Bank's sentiment improved as well, as 75% of their traders hold long positions, compared to 71% yesterday.
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 June 01 and July 01, 67% of the participants expect the US Dollar to cost more than 123 yen in three months. However, the mean forecast for October 01 is 124.85. Meanwhile, the 126.00-127.50 price interval received the largest amount votes, namely 21%, while the second choice is still the 124.50-126.00 price range, chosen by 15% of participants.
Community Forecasts
The majority of traders expect the US Dollar to edge lower against the Yen. Khalidamassi, one of those traders, commented that the "USD/JPY moved strong up last week towards 124, that is good for pair, but the bad thing is that the pair is unable to clearly break and close above last week's high, so USD/JPY is still seen to be vulnerable up and down next week". However, aslamhammad, a trader with a bearish outlook towards the Greenback, expects the pair to go up around 124-125 yen, as he expects the non-farm employment change to be better-than-expected.