- Buy orders now account for 62% of the market
- Bullish market sentiment remains unchanged at 71%
- Immediate resistance is represented by the weekly PP at 124.47
- The closest support is located at 124.22, namely the 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 Empire State Manufacturing Index, US NAHB Housing Market Index, US TIC Long-Term Purchases
The Greenback experienced mixed performance over Friday and the weekend, as the US PPI showed improvement, while the Preliminary UoM Consumer Sentiment worsened. The Buck advanced 0.55% versus the Euro, following with 0.28% and 0.22% gains against the Loonie and the Kiwi, respectively. A 0.23% decline was registered versus the Sterling, whereas the US Dollar remained relatively unchanged against the Aussie, adding 0.06%, and the Yen, losing 0.02%.
US producer prices climbed for a third consecutive month in July, but inflation pressures remained weak amid lower oil prices and a strong US Dollar. The Labor Department reported its producer price index for final demand edged higher 0.2% last month after rising 0.4% in June. Core prices, which strip out volatile energy and food components, were up 0.3% in July. However, in the 12 months through July, the PPI dropped 0.8% after decreasing 0.7% in June. It was the sixth straight 12-month decline in the index. Producer prices and other inflation gauges have broadly fell over the past year against the backdrop of cheaper oil, a stronger Greenback and weak global demand. Oil prices started plunging sharply last year due to rising supplies. The US Dollar has strengthened due to weakness overseas and moves by global central banks to stimulate economies. Most recently, Beijing devalued the Yuan, which will make Chinese goods cheaper in the US.
This week's CPI data will be even more important in assessing the underlying price pressures. For now however, most of the economic data supports the case for a September hike. The FED is looking for inflation to firm gradually as it considers when to raise short-term interest rates, which have been near zero since December 2008. Fed officials have signalled they could start hiking rates as early as September if the world's number one economy continues to show signs of steady growth.
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 Empire State Manufacturing Index
Although the Japanese Q2 GDP data showed little signs of improvement, the Yen barely outperformed the US Dollar. The only thing that could significantly influence the USD/JPY currency pair is the US Empire State Manufacturing Index. The given Manufacturing Index is the level of a diffusion index based on the surveyed manufacturers in the NY. Basically, it shows business conditions, to which businesses react quickly and could see signals of futures economic activity and adjust their sentiment accordingly. The Index is expected to rise, thus, showing signs of improvement; however, according to historical data the results might fail to meet expectations and weigh on the US currency.
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 stuck between 20-day SMA and weekly PP
The Greenback failed to appreciate against the Yen on Friday, but is expected to do so today, as a consequence of the poor Japanese Q2 GDP report. Furthermore, the 20-day SMA keeps providing support, refusing to let the USD/JPY to edge lower. Technical studies also retain their bullish signals, bolstering the possibility of a positive outcome. However, a resistance rests at 124.47, represented by the weekly PP, which could limit the gains or even cause the given pair to retreat towards the 20-day SMA at 124.21.Daily chart
The USD/JPY kept consolidating on Friday, after such a gradual decline last Wednesday. The 200-hour SMA keeps preventing the Greenback from climbing over 124.60, while the 124.00 major level holds the pair afloat. A strong fundamental event, such as the FOMC Meeting Minutes, is likely to help the US Dollar break out of the cage this Wednesday.
Hourly chart
Bulls still prevailing over bears
OANDA and SAXO clients retain their bullish perspectives towards the Buck. The share of bulls at OANDA advanced to 60% (previously 56%), whereas 66% of SAXO Group clients retain a positive outlook towards the Greenback.
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 17 and August 17, 69% of the participants expect the US Dollar to cost more than 123 yen in three months. However, the mean forecast for November 17 is 124.83. 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 17% of the surveyed, implies that the US Dollar will cost more than 130.50 yen.