- The share of buy orders slid from 74 to 69%
- 74% of traders are now long the Buck
- Immediate resistance is represented by the 20 and 55-day SMAs, weekly S1 and monthly PP around 123.40
- The closest support is located around 123.03, namely the weekly S2
- 23% of traders expect the Greenback to cost between 124.50 and 126.00 yen in three months
- Upcoming events today: US CB Consumer Confidence, US Markit Manufacturing PMI, Japanese Retail Sales
The Greenback declined against most major currencies on Monday. The largest losses were registered against the Euro and the Kiwi, as the Buck lost 1.04% and 0.72%m respectively. However, the US Dollar remained relatively unchanged versus the Aussie (-0.01%), the Loonie (-0.04%) and the Swiss Franc (-0.04%).
Orders to American factories for big-ticket items rose more than expected in June, while business investment recovered after two months of drops. Durable goods orders surged 3.4% in June from the previous month, when orders had declined 2.1%, according to the Commerce Department. May's reading, meanwhile, was revised to show even sharper decline of 2.2%, compared with the original 1.8% decrease. At the same time, core durable goods orders, which exclude volatile category of transportation goods, were up 0.8% in June, the best showing in 10 months. The highly-watched bookings for non-defence capital goods excluding aircrafts, viewed as a proxy for business investment plans, jumped 0.9%, also the best showing since March.
US manufacturers have struggled this year from the effects of a strong Dollar and a sharp decline in energy prices. The higher value of the Greenback versus other currencies makes US goods more expensive and less competitive in major export markets, while the lower oil prices have led energy companies to scale back investment plans. The overall economy shrank at an annual rate of 0.2% in the January-March quarter. Weakness was likely due to a number of temporary factors including a harsh winter. The economy is expected to rebound to around 2.5% in the second quarter. The government will release its first estimate of GDP growth on Thursday.
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 CB Consumer Confidence and Japanese Retail Sales
In the second half of the day today the US CB Consumer Confidence is to be released. It shows the consumer spending activity, which in turn accounts for the majority of all economic activity. Even though the figures are expected to worsen, the Consumer Confidence data tends to behave differently and ignore the forecast. Therefore, we might see improvements in today's report, instead of the expected deterioration. Moreover, at the end of the day, the METI is to post data on the Japanese Retail Sales. The forecast stands at a much slower growth rate, compared to the previous release, while historical data shows that Retail Sales figures tend to disappoint a lot. Basically, this confirms the bullish scenario for the USD/JPY by day's end.
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 gives 124.00 another shot
The US Dollar completely ignored the positive fundamental data yesterday, as it declined against the Yen. The strong support cluster failed to hold the losses, as the USD/JPY dropped to a daily low in face of the weekly S2. Nevertheless, a rebound is expected to take place today, providing a chance for the Buck to erase Monday's losses. The main target remains the 124.00 psychological level, which could be failed to be reached, as the weekly PP is blocking the path at 123.93. Technical studies retain their bullish signals in all timeframes, suggesting the Greenback is to surge today.Daily chart
The US Dollar failed to appreciate against the Yen yesterday, thus, the 200-hour SMA could not be reached. Nevertheless, the Greenback might still reach the target after today's possible surge. However, the given SMA might provide sufficient resistance in order to push the USD/JPY back down to 123.00.
Hourly chart
Bulls still prevailing over bears
OANDA and SAXO clients retain their bullish perspectives towards the Buck. The share of bulls at OANDA increased from 55 to 60%, whereas 68% of SAXO Group clients retain a positive outlook towards the Greenback.
Spreads (avg, pip) / Trading volume / Volatility
23% of traders expect the Greenback to cost between 124.50 and 126.00 yen in three months
According to the survey conducted between June 28 and July 28, 62% of the participants expect the US Dollar to cost more than 123 yen in three months. However, the mean forecast for October 28 is 123.81. Meanwhile, the 124.50-126.00 price interval received the largest amount of votes, namely 23%, while the second largest choices, selected by 13% of the poll participants, implies that the US Dollar will cost between 117.00 and 118.50 yen after three months.