- The share of purchase orders dropped from 71 to 70%
- Exactly three quarters of all positions are now long (previously 70%)
- Immediate resistance is represented by the Bollinger band at 124.38
- The closest support is located around 123.87, namely weekly PP and 20-day SMA
- 21% of traders expect the Greenback to cost between 124.50 and 126.00 yen in three months
- Upcoming events today: US Factory Orders, US ADP Non-Farm Employment Change, US Trade Balance, US ISM Non-Manufacturing PMI
Despite poor US ISM Manufacturing PMI data, the Greenback appreciated against most major peers yesterday, with exception versus the Yen, as it lost 0.07%. The largest gains of 0.31% and 0.26% were detected against the Aussie and the Loonie, respectively. Furthermore, the US Dollar added 0.22% versus the Sterling, 0.21% versus the Swissie and 0.20% versus the Kiwi. The Euro held most resilient, as the Buck managed to gain only 0.15% against it.
A closely watched core PCE inflation remained steady in June, while consumer spending and incomes suggest robust, albeit moderate economic growth. The index for personal consumption expenditures, excluding volatile food and energy prices, climbed 0.1% in June, in line with the market's forecasts and marking the third such rise in a row, according to the Department of Commerce. Measured on an annual basis, the reading was 2.3% higher, maintaining the trend since the start of the year. This should make Fed policy makers comfortable to start lifting the federal funds rate at their meeting in September. Consumer spending in nominal terms climbed 0.2% in June also matching economists' projections, and following a downwardly revised 0.7% rise in May. Still, healthier consumption allowed the world's number one economy to rebound 2.3% in the June quarter in annualized and inflation-adjusted terms. At the same time the data showed households' incomes increased 0.4% for the third month in a row, beating economists' expectations' for a 0.3% gain in June.
Meanwhile, the pace of growth in the nation's manufacturing sector weakened in July. The ISM's barometer of the US factory activity dropped to 52.7, down from 53.5 a month earlier. While the new orders sub-index rose to 56.5, prices paid subcomponent and the employment index slid to 44.0 and 52.7, respectively.
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 Factory Orders
From the US side the Factory Orders is the only even of sufficient importance today. After showing an actual result of -1% in the previous release, the change in total value of new purchase orders is expected to rebound and show signs of growth in today's release. However, we might see a worse-than-anticipated result, as the weak trend persisted for almost a year. Moreover, the Japanese Average Cash Earnings declined from 0.7% to -2.4% for July, but appeared to have no effect on the USD/JPY exchange rate, which leaves us with the Factory Orders to determine the fate of the given pair.
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 gravitates towards 124.00
The USD/JPY remained relatively unchanged on Monday, as the pair only suffered a nine-pip loss. The weekly PP along with the 20-day SMA prevented the Greenback from edging lower and are expected to do so again today. As a result, we US Dollar is likely to rebound and climb above the 124.00 major level once again. However, for the past several days the pair was glued to the psychological 124.00 area; therefore, the rally is unlikely to exceed 25 pips. Meanwhile, technical studies' signals shifted from mixed to bullish ones, bolstering the possibility of the positive outcome.Daily chart
The USD/JPY currency pair remained rather flat yesterday, as the 200-hour SMA prevented the pair from edging lower. Right now the US Dollar is testing the 200-hour SMA at 123.83, where it coincides with a possible support trend-line. If the bullish momentum gets preserved, the trend-line is then to become viable and be used as a solid support in the future.
Hourly chart
Bulls still prevailing over bears
OANDA and SAXO clients retain their bullish perspectives towards the Buck. The share of bulls at OANDA slightly worsened from 59 to 58%, whereas 63% of SAXO Group clients retain a positive outlook towards the Greenback, down from 64%.
Spreads (avg, pip) / Trading volume / Volatility
21% of traders expect the Greenback to cost between 124.50 and 126.00 yen in three months
According to the survey conducted between July 04 and August 04, 63% of the participants expect the US Dollar to cost more than 123 yen in three months. However, the mean forecast for November 04 is 123.87. Meanwhile, the 124.50-126.00 price interval received the largest amount of votes, chosen by 21% of all poll participants, while the second largest choice, selected by 13% of the surveyed, implies that the US Dollar will cost between 117.00 and 118.50 yen after three months.