- The share of buy orders inched up from 67 to 72%
- 71% of all positions are now long (previously 73%)
- Immediate resistance is represented by the Bollinger band and weekly R1 around 124.95
- The closest support is located at 124.40, 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 Preliminary Unit Labor Costs, US Preliminary Nonfarm Productivity, US Wholesale Inventories, Japanese Monetary Policy Meeting Minutes
One of the FOMC member's, namely Fischer's, statement was quite dovish yesterday, therefore, rising doubts about the September interest rate hike. As a result, The Greenback sustained serious losses, declining against most major peers, with exception against the Yen. The Buck suffered the most versus its Canadian counterpart, losing 1.03%, following with a 0.63% and 0.52% decline against the Sterling and the Euro, respectively. Gains of 0.24% were recorded against the Yen, while the Greenback remained completely unchanged against the Swiss Franc.
Dennis Lockhart, Federal Reserve Bank of Atlanta President, said the US central bank is close to hiking the interest rates, as the world's number one economy is "approaching an acceptable normal." However, Lockhart highlighted that the pace of subsequent rate increases should be gradual. The economic growth is expected to pick up in the second half of the year, while the labour market will continue to tighten that will likely to push up wages. The 12-month inflation remains very week, Lockhart added, but there were some signs that short-term inflation has been firming.
Meanwhile, the Labor Market Conditions Index compiled by the Fed dropped to 1.1 points last month, down from an upwardly revised 1.4 points in June. The measure averaged 1.17 points over the past three months, recovering from negative territory in spring. The labour market lost some steam this year due to weaker global growth, while a stronger Greenback added pressure on exporters and cheaper oil hurt investment in the energy sector. The Labor Department said last week that US economy created 215,000 jobs in July, and the unemployment rate remained at 5.3%, data Lockhart called "quite satisfactory." Fed officials recently said they wanted to see "some" further improvement in the labour market before lifting the benchmark rate from near zero.
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 Preliminary Unit Labor Costs and Preliminary Nonfarm Productivity, Japanese Monetary Policy Meeting Minutes
From the US side the Preliminary Unit Labor Costs and the Preliminary Nonfarm Productivity are expected to influence the USD/JPY. Although the Unit Labor Costs are anticipated to remain unchanged compared to the previous quarter, there is a good chance we will see better-than-expected figures, as, according to historical data, growth has been present in the past five months. Furthermore, the Nonfarm Productivity is likely to rebound, and even if it fails to meet expectations, it should be outweighed by the Unit Labor Costs, thus, boosting the US Dollar sufficiently to outperform other major currencies. Finally, the Japanese Monetary Policy Meeting Minutes are due at 23:50 PM GMT today. No changes are expected, with Abenomics continuing their work, therefore, supporting the fact that the US Dollar is to outperform the Yen.
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 aims for fresh two-month high
The USD/JPY touched the target resistance, namely the Bollinger band, yesterday, but closed at 124.63. Nevertheless, the given pair still appreciated and is expected to extend its rally today as well. The Bollinger band shifted higher, closer towards the 125.00 psychological level, which is also bolstered by the weekly R1. Together these levels form a strong resistance, limiting the probable gains today; however, a breach is possible if the pair receives a sufficient fundamental boost. Technical studies are now showing mixed signs, leaving the door open for a slump under the weekly PP.Daily chart
The US Dollar edged higher at first, but was then pushed back down, finding support at the trend-line, thus, confirming it once again. The USD/JPY kept rising afterwards, but the 125.00 psychological level keeps preventing the pair from advancing further, as it has during the previous week. The ascending triangle is narrowing, indicating that the Greenback is risking to break out of it to the downside.
Hourly chart
Bulls still prevailing over bears
OANDA and SAXO clients retain their bullish perspectives towards the Buck. The share of bulls at OANDA returned to its Friday's level of 55% (previously 58%), whereas 60% of SAXO Group clients retain a positive outlook towards the Greenback, down from 61%.
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 July 11 and August 11, 68% of the participants expect the US Dollar to cost more than 123 yen in three months. However, the mean forecast for November 11 is 124.61. Meanwhile, the 124.50-126.00 price interval received the largest amount of votes, chosen by 20% of all poll participants, while the second largest choice, selected by 16% of the surveyed, implies that the US Dollar will cost less than 118.50 yen.