- The share of buy orders returned to last Monday's level of 67%
- Market sentiment remains bullish at 70% (previously 73%)
- Nearest resistance rests around 123.10, represented by the 20-day SMA
- The closest support now lies at 122.66, namely the weekly PP
- 20% of traders expect the Greenback to cost between 124.50 and 126.00 yen in three months
- Upcoming events today: US Trade Balance, US JOLTS Job Openings, Japanese Current Account
The Greenback appreciated against most major currencies, but suffered losses versus the Yen and the Sterling. The largest gains was recorded versus the Loonie and the Euro, adding 0.62% and 0.44%, respectively. A 0.23% and 0.18% declines occurred against the Sterling and the Yen, respectively; whereas the Buck remained relatively unchanged versus the Kiwi, adding 0.06%.
Even though activity in the US non-manufacturing sector rose in June, it fell shy of economists' expectations. According to the Institute for Supply Management, non-manufacturing PMI came in at 56.0 in June, up from 55.7 a month earlier, which was the lowest level since April last year. Yet, the reading remained firmly in expansion territory.
Meanwhile, a separate report showed the US labour market was less strong in June, suggesting the Fed might be less willing to begin hiking interest rates on September. The central bank's comprehensive gauge of employment conditions remained virtually flat at 0.8 points in the reported month, considerably below the 2 points economists had expected and following a downward revised 0.9 points in May. The US unemployment rate declined to post-recession lows of 5.3%, partly due to fall in participation rate, whereas more than 2.9 million jobs were added in the past twelve months. Still, most economists believe the Fed is likely to hike interest rates from all-time low in September, as the weekly jobless claims remain near the lowest levels of the business cycle, the number of vacant positions reached the highest level on record, and there were some signs of higher wage pressures, particularly in the quarterly employment costs index.
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
From the US side we should pay the most attention to the Trade Balance, which is due at 15:30 PM GMT. Not only the Trade Balance is likely to remain negative, but also weaken even further this month, meaning that the US imported more goods than exported. This is also an event of high importance and tends to have a strong impact on the market. The JOLTS Job Openings, a less important even today, is also expected to worsen slightly, thus weakening the Greenback even more. Furthermore, early morning tomorrow, the Japanese Current Account is to show signs of improvement, compared to the previous month.
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 erase Monday's gains
On Monday, the USD/JPY almost reached the 123.00 psychological level, but due to lack of the bullish momentum was pulled back. As a result, the US Dollar stabilised at 122.66, right on top of the weekly pivot point. Today the Greenback is likely to bounce back from the weekly PP, despite attempts to edge higher in the early hours. The 55-day SMA keeps providing support, now around 122.45, but if the fundamentals disappoint the Buck might drop to 122.14, namely the Bollinger band.Daily chart
After experiencing some volatility on Monday, the US Dollar still was unable to completely close the trade gap. The exchange rate is also edging closer to the 200-hour SMA, which could either force the US Dollar to bounce back or, if pierced, to build ground for further appreciation.
Hourly chart
Bulls keep dominating the market
Although not as strong as yesterday, but market sentiment remains bullish at 70% (previously 73%). The share of buy orders returned to last Monday's level of 67%.
OANDA and SAXO clients retain their bullish perspectives towards the Buck. The share of longs at OANDA remains unchanged at 60%, while the SAXO Bank's sentiment slightly improved, as 72% of their traders hold long positions, compared to 68% yesterday.
Spreads (avg, pip) / Trading volume / Volatility
20% of traders expect the Greenback to cost between 124.50 and 126.00 yen in three months
According to the survey conducted between June 07 and July 07, 66% of the participants expect the US Dollar to cost more than 123 yen in three months. However, the mean forecast for October 07 is 124.71. Meanwhile, the 124.50-126.00 price interval received the largest amount of votes, namely 20%, while the second choice is now taken by the 126.00-127.50 price range, chosen by 16% of participants.