- The portion of buy orders declined from 62 to 58%
- Market sentiment remains bullish at 62%
- Immediate resistance is represented by the weekly PP at 124.47
- The closest support is located at 124.24, 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 Building Permits, US Housing Starts, Japanese Trade Balance
The US Dollar experienced mixed performance over the day, amid mixed fundamental data on Monday. The Greenback lost 0.57% versus the Kiwi, as it was boosted by the lifted dairy ban in Russia. The Buck appreciated 0.42% against the Sterling, while remaining relatively unchanged versus the Yen, adding 0.06%, the Loonie, losing 0.04%m and the Aussie, losing 0.07%.
US homebuilders' sentiment rose to the highest level in almost a decade this month, suggesting growing confidence in a gradually improving housing market. The housing market index climbed to 61 in August, the highest since November 2005, up from 60 the previous two months, the National Association of Home Builders/Wells Fargo reported. A reading above the 50-mark threshold indicates that most builders see conditions in the market as positive. The reading has been positive for the past year, following five months in early 2014, when the index was in negative territory. In June, sales of existing homes surged to their highest since February 2007, while newly built single-family home sales dropped in June by 6.8% to their lowest level since November 2014, as a shortage of inventory drives up prices at an unsustainable pace.
A separate report showed the Federal Reserve Bank of New York's Empire State factory index plummeted to minus 14.9 in August, the lowest level since April 2009. A robust job market and historically low mortgage rates will probably keep underpinning demand for residential real estate, helping home building sector contribute to overall economic growth. Gains in construction will be needed to help offset any slowdown in manufacturing as factories struggle with a strong Dollar and bloated inventories.
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 Building Permits and Japanese Trade Balance
From the US side attention should be paid to the Building Permits data release. The Building Permits is a gauge of future construction activity, as it obtaining a permit is the first step of beginning construction. The number is forecasted to fall, but according to historical data, expectations might be exceeded to the upside, thus, pressuring the USD/JPY down. Another sign of the given pair's weakness is the Japanese Trade Balance, which is expected to rise, but still remain negative. Nonetheless, it is still an improvement and good figures are likely to strengthen the Yen against most majors.
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 takes another shot at breaking out of the cage
Even though the USD/JPY currency pair experienced some volatility, it still remained contained within the borders of the 20-day SMA and the weekly PP. Ultimately, the US Dollar inched eight pips higher and stabilised at 124.45, just in front of the weekly PP. The pivot point keeps providing resistance today and is likely to cause the Greenback to bounce back, unless the US fundamentals surprise to the upside. Meanwhile, the 20-day SMA keeps supporting the given pair from below, whereas technical studies suggest the Buck is to extend its rally.Daily chart
The Greenback's attempts to advance against the Yen were dampened by the 200-hour SMA yesterday, which also keeps providing strong resistance today and keeping the Buck at bay. The 124.00 is now the target, which should cause a rebound in case more losses occur.
Hourly chart
Bulls still prevailing over bears
OANDA and SAXO clients retain their bullish perspectives towards the Buck. The share of bulls at OANDA worsened to 59% (previously 60%), whereas 69% 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 18 and August 18, 69% of the participants expect the US Dollar to cost more than 123 yen in three months. However, the mean forecast for November 18 is 124.93. 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.