- The share of buy orders edged up from 51 to 70%
- Bullish market sentiment returned to its Thursday's level of 73%
- Nearest resistance rests around 122.66, represented by the weekly PP
- The closest support now lies at 122.40, namely the 55-day SMA
- 19% of traders expect the Greenback to cost between 124.50 and 126.00 yen in three months
- Upcoming events today: US Markit Services PMI, US ISM Non-Manufacturing PMI, US Labor Market Conditions Index
The US Dollar experienced mixed performance over Friday and the weekend. Minor losses of 0.33%, 0.23% and 0.19% were detected against the Swissie, the Yen and the Euro, respectively, while the Buck also appreciated versus the Sterling (0.27%), the Loonie (0.27%) and the Kiwi (0.44%). However, the largest gain was recorded versus the Aussie, namely 1.47%.
US private employers created more jobs than expected in June, indicating further improvement in the labour market, which may justify US interest rate hike later this year. According to the payroll firm ADP, US private sector added 237,000, following the revised 203,000 in May and overshooting economists' expectations for an upturn to 218,000. The ADP figures are released prior to the US Labor Department's more comprehensive non-farm payrolls report on Thursday, which includes both public and private-sector employment. Economists predict total US employment to have increased by 230,000 jobs in June, down from May's 280,000 gain. The unemployment rate was expected to slide to the lowest level in seven years of 5.4% from 5.5 American employers continued to add more than 200,000 jobs for a third consecutive month in June, while the US unemployment rate declined more than expected. US non-farm payrolls rose by 223,000 in June, following the downwardly revised 254,000 a month earlier, according to the Labor Department. The jobless rate slid to 5.3%, down from 5.5% the prior month, marking the lowest rate since April 2008. Nevertheless, many analysts continue to criticize the figure for not objectively reflecting the real picture of the labour market. The real unemployment rate was 10.5%, according to an alternative reading known as underemployment level or U6. It stood at 10.8% in May.
Meanwhile, the number of Americans participating in the labour force dropped to 62.6% in June from 62.9% in the preceding month, reaching the lowest level since 1977. Average hourly earnings of private-sector workers remained unchanged last month at $24.95. From a year earlier, wages rose 2%, almost in line with wage gains for much of the current recovery. The mixed data comes as the US economy could face a number of headwinds later in the year. The Greek debt crisis could derail growth in the rest of Europe and even impact US financial markets. The combination of easy-money policies by foreign central banks and investors' confidence in the US has caused the value of the Dollar to soar over the past year.
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 ISM Non-Manufacturing PMI
With the Japanese data already released, the only relevant ones remain from the US, with the most important one being the ISM Non-Manufacturing PMI. The index is forecasted to rebound, after the service sector activity slowed more than anticipated in May. A rise of the index is likely to mean an increase in the stock markets because of higher corporate profits, while the bond markets could decrease, amid sensitivity to potential inflation. Nonetheless, if the figures manage to meet expectations or surpass them, the US Dollar should appreciate versus 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 to attempt to reclaim 123.00
The US Dollar failed to withstand the pressure against the Yen, as pierced the 123.00 major level on Friday. However, the USD/JPY only reached a daily low of 122.60, rather than 122.40. On Monday, trade opened at the 122.40 mark, with light shining upon the Greenback, despite bearish technical studies. The 55-day SMA, located at the same area, is providing solid support, suggesting the Buck is to appreciate today. The immediate resistance now rests at 122.66, represented by the weekly PP, but the 123.00 psychological level might still be reached if the fundamentals are in favour.Daily chart
The USD/JPY experienced a sell-off on Friday, also experiencing a serious gap on the weekend. Although the Buck appeared to have regained the bullish momentum and reached the Friday's close price in the hourly hours on Monday. However, the pair was unable to rise beyond the 122.70 level, as it got pushed back down. Currently, the Greenback is approaching the 122.00 major level, failing to appreciate against the Yen, awaiting for the fundamental data in order to receive a boost.
Hourly chart
Bulls keep dominating the market
Bullish market sentiment returned to its Thursday's level of 73%, while the share of buy orders edged up from 51 to 70%.
OANDA and SAXO clients retain their bullish perspectives towards the Buck. The share of longs at OANDA, however, returned to its Thursday's level of 60%, up from 56%, while the SAXO Bank's sentiment slightly weakened even further, as 68% of their traders hold long positions, compared to 69% on Friday.
Spreads (avg, pip) / Trading volume / Volatility
19% of traders expect the Greenback to cost between 124.50 and 126.00 yen in three months
According to the survey conducted between June 06 and July 06, 66% of the participants expect the US Dollar to cost more than 123 yen in three months. However, the mean forecast for October 06 is 124.79. Meanwhile, the 126.50-126.00 price interval received the largest amount of votes, namely 19%, while the second choice is now taken by the 126.00-127.50 price range, chosen by 15% of participants.