- The number of purchase orders declined from 67 to 51%
- Bullish market sentiment returned to last Wednesday's level of 74%
- Nearest resistance rests around 122.66, represented by the weekly PP
- The closest support now lies at 122.45, namely the 55-day SMA
- 22% of traders expect the Greenback to cost between 124.50 and 126.00 yen in three months
- Upcoming events today: US Crude Oil Inventories, FOMC Meeting Minutes, FOMC Member Williams Speech, Japanese Core Machinery Orders
The Greenback was one of the best-performing currencies on Tuesday, with exception against the Yen. The US Dollar gained 0.94% versus the Sterling, following with lesser gains of 0.64% against the Aussie and 0.57% versus the Kiwi. Moderate gains were recorded against the Swiss Franc (0.44%), the Loonie (0.42%) and the Euro (0.40%), whereas the Buck remained relatively unchanged versus the Japanese Yen, losing 0.02%.
The US trade deficit increased 2.9% in May amid weak exports of aircraft and other manufacturing goods. The US trade shortfall rose to a seasonally adjusted $41.9 billion from a revised $40.7 billion in April, the Commerce Department said. Exports fell 0.8% to $188.6 billion, undermined by a strong Dollar and lacklustre growth outside the US. At the same time, imports declined 0.1% to $230.5 billion. The trade deficit has averaged $41.3 billion in the first two months of the second quarter, compared with a $43.4 billion average in the first quarter. Therefore, trade deficit is unlikely to be a drag on the nation's gross domestic product in the second quarter as it was in the first three months of the year, when the US economy shrank. For the first time in 25 years the US saw a surplus with Canada, due to lower oil imports and a stronger Dollar. The deficits with China and the European Union both widened, though.
A separate report showed the number of job openings remained at record high. The number of job openings in the US totalled 5.36 million in May, little changed from the prior month. Job gains have been solid since February 2014, yet many Americans are still confronting financial uncertainties due to tepid wage growth. Last week, the government said employers added a robust 223,000 jobs in June. However, average hourly wages remained virtually flat.
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."
FOMC Meeting Minutes
The Japanese Current Account already posted better-than-expected figures, thus boosting the Yen even further. Furthermore, from the US side, the Meeting Minutes is to unveil the Fed's decision concerning interest rate hike. However, more members hinted on only one interest rate hike to occur in 2015, therefore the September hike is most likely out of the question. The Minutes tone is also expected to be rather dovish, which should weaken the Greenback. Nevertheless, the Buck could retain its strength against the Euro, amid the Greek debt crisis.
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 risks falling to six-week low
The weekly PP caused the US Dollar to fall back down, reaching the lower Bollinger band. However, the USD/JPY closed trade not as low as anticipated, as it stabilised at 122.53, but failed to negate Monday's gains. Today the Greenback is expected to further weaken against the Yen, while technical indicators are bolstering the outcome with bearish signals. The 55-day SMA keeps acting as the immediate support, but it proved to be unreliable. As a result, the Buck is to fall towards the Bollinger band again, unless the Fed provides solid insight on the rate hike.Daily chart
Despite attempts to inch higher, the 200-hour SMA provided resistance and kept the USD/JPY at bay. As a result, the Greenback sustained losses and keeps declining dramatically today. The pair already reached a daily low of 121.40, which could result in a drop below the 121 major level by the end of the day..
Hourly chart
Bulls keep dominating the market
Bullish market sentiment returned to last Wednesday's level of 74%, whereas the number of purchase orders declined from 67 to 51%.
OANDA and SAXO clients retain their bullish perspectives towards the Buck. The share of longs at OANDA edged higher, from 60 to 61%, while the SAXO Bank's sentiment slightly weakened, with 70% of their traders hold long positions, compared to 72% yesterday.
Spreads (avg, pip) / Trading volume / Volatility
22% of traders expect the Greenback to cost between 124.50 and 126.00 yen in three months
According to the survey conducted between June 08 and July 08, 63% of the participants expect the US Dollar to cost more than 123 yen in three months. However, the mean forecast for October 08 is 124.34. Meanwhile, the 124.50-126.00 price interval received the largest amount of votes, namely 22%, while the second choice is now taken by the 126.00-127.50 price range, chosen by 16% of participants.
Based on all fundamental predictions, Dukascopy weekly quiz participants became much more bullish on the US Dollar, as now 72.5% of all votes are placed on the long side. On the other hand, the average forecast for this Friday stays at 123.00.
Khalidamassi, a member of the Dukascopy community, is in the majority of traders, who believe the US Dollar will outperform the Japanese Yen this week. "The USD/JPY still move in a range between 122 and 124, any clear break above 124 will move the pair strongly higher, any clear break below will move the pair lower", he said. However, there are also those, who assume the Yen is to weigh on the Greenback, and geula4x is one of them. He mentioned that the USD/JPY could turn bearish this week, as the Greek referendum vote result caused uncertainty, which in turn causes strong risk aversion in the markets. Therefore, geula4x concludes that investors prefer JPY over the USD as a "safe haven".