- The number of commands to buy the US Dollar dropped two percentage points to 55%
- Bulls retreated once again, but their share refused to drop below the 70% mark
- Nearest resistance rests around 124.80, represented by the Bollinger band, weekly and monthly R1s
- The closest support now lies around 123.59, namely the weekly PP
- 19% of traders expect the Greenback to cost between 124.50 and 126.00 yen in three months
- Upcoming events today: Japanese All Industries Activity, Japanese Trade Balance, US Existing Home Sales, US Crude Oil Inventories
The Greenback experienced mixed performance over Monday, remaining mostly unchanged against some major peers. Tthe Buck suffered a 0.97% loss against the New Zealand Dollar, despite losing only 0.05% against the Aussie and 0.03% versus the Euro. Furthermore, the US Dollar added the most against the Sterling (0.22%), following with smaller gains against the Yen (0.13%), the Swissie (0.11%) and the Loonie (0.07%).
US housing starts recovered strongly in June, while building permits surged to near the highest level in eight years, adding to signs of a rapidly strengthening housing market. Groundbreakings on new homes soared 9.8% to a seasonally adjusted annual rate of 1.17 million units, according to the Commerce Department. May starts were revised up to 1.07 million units from 1.04 million units reported previously. At the same time, permits for future home construction surged 7.4% to 1.34 million units, marking the highest level since July 2007. Measured on annual basis, housing starts rose 26.6%, while building permits advanced 30% in June. In addition to that, a survey showed builders' confidence stood at a more than nine-year high in July, reinforcing the view that both permits and groundbreaking have scope to increase further..
A separate report showed US consumer prices climbed for a fifth consecutive month in June amid higher fuel and food costs. The cost of living in the US rose a seasonally adjusted 0.3% in June from the previous month, the Labor Department reported. Measured on a yearly basis, prices inched up by 0.1%. When excluding volatile energy and food components, core prices climbed 0.2% last month and 1.8% from a year earlier. Meanwhile, US consumer sentiment declined more than expected in July. The University of Michigan's preliminary July reading on the index of consumer sentiment came in at 93.3, down from a final reading of 96.1 in June.
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."
Market lacks movers in the beginning of the week
Tuesday is also empty on the fundamental events and data releases. Nevertheless, on Wednesday attention should be paid to the Japanese Trade Balance and the US Existing Home Sales. According to the forecast, the Home Sales are to rise in the July's report, while the Trade Balance is likely to fall deeper into deficit. If data does not disappoint, we should see the Greenback weigh the Yen down.
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 climbs steadily towards 125.00
On Monday, the USD/JPY currency pair edged slightly higher, adding 16 pips in total. Today's technical studies keep giving mixed signals, while the US Dollar is still expected to maintain the gains. Although the nearest resistance cluster around 124.85 is likely to limit the rally, the Greenback will doubtfully inch that far; thus, 124.60 should be the ceiling for today. In the medium term, namely by week's end, the American Dollar is to test the 125.00 major level if it receives a strong enough boost.Daily chart
The US Dollar keeps growing against the Japanese Yen, but at a much slower pace, suggesting the tide might soon turn. Nonetheless, the pair is unlikely to bounce back just yet, as the Greenback is expected to keep edging higher today.
Hourly chart
Bulls still prevailing over bears
OANDA and SAXO clients retain their bullish perspectives towards the Buck. The share of longs at OANDA keeps edging higher, now from 57 to 59%, while the SAXO Bank's sentiment improved as well, as 59% of traders hold long positions again today.
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 21 and July 21, 58% of the participants expect the US Dollar to cost more than 123 yen in three months. However, the mean forecast for October 21 is 123.20. Meanwhile, the 124.50-126.00 price interval received the largest amount of votes, namely 19%, while the second choice is taken by the 126.00-127.50 price range, chosen by 16% of participants.