- The share of buy orders increased from 58 to 64%
- 66% of all positions are long today
- Immediate resistance is represented by the weekly PP at 124.47
- The closest support is located at 124.29, namely the 20-day SMA
- 22% of traders expect the Greenback to cost between 124.50 and 126.00 yen in three months
- Upcoming events today: US CPI and Core CPI, US Crude Oil Inventories, FOMC Meeting Minutes
The US Dollar experienced mixed performance over Tuesday, due to poor US Building Permits data. The Buck gained 0.46% versus the Aussie and 0.42% versus the Euro, but also declined 0.51% against the Sterling. Furthermore, the Greenback remained relatively unchanged against the Swiss Franc (-0.09%) and the Japanese Yen (-0.04%).
US housing starts rose to the highest level since October 2007 in July, adding to further signs of economic improvement in the world's biggest economy. Groundreaking inched up 0.2% to a seasonally adjusted annual pace of 1.21 million units, according to the Commerce Department. Moreover, June's data was revised sharply higher to a 1.20 million-unit rate from the previously estimated 1.17 million-unit pace. Housing starts have been above one million for four months in a row. The upbeat housing data added to sturdy payrolls, retail sales and industrial production reports in suggesting the US economy started the third quarter on a firm footing. The slew of upbeat fundamentals reinforces the view the US central bank will hike rates in September. In July, groundbreaking for single-family homes, which makes up the largest share of the market, soared 12.8% to a 782,000 unit pace, the highest level since December 2007. However, starts for the volatile multifamily segment plummeted 17%.
At the same time building permits plunged 16.3% last month to a 1.12 million-unit pace. The decline followed three consecutive months of hefty increases and is likely to be temporary after a report on Monday showed confidence among homebuilders climbed to the highest level in almost a decade in August.
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 CPI and FOMC Meeting Minutes
No further events are due today from the Japanese side, thus, all focus is set on the US fundamentals, namely the inflation data. The Consumer Price Index is a key indicator that measures inflation and changes in the purchasing trends. The CPI is released by the US Bureau of Labor Statistics and is due at 12:30 PM GMT today. Generally, the purchasing power of USD is dragged down by inflation and changes in purchasing trends, meaning that a high reading is seen as positive for the Greenback. The forecast stands at 0.2%, down from 0.3% for CPI, while the Core CPI is expected to grow at the same rate as before, namely 0.2%. Today's CPI data is also likely to influence the FOMC Meeting Minutes results, as strong data should push the Fed to hiking interest rates as early as September.
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 around 124.40, awaits inflation data
The USD/JPY remained relatively unchanged on Tuesday, as the pair lost only five pips. The experienced volatility was contained by the 20-day SMA and the weekly PP, but a break to the downside is expected today. The main gauge of a decline is the inflation fundamental data, as weak figures are likely to delay the Fed's interest rate hike, thus, pressuring the Greenback. The 124.00 major level could be pierced again, while the 123.65 support cluster should limit any substantial losses if those occur. A rally towards 125.00 is not out of the question, as technical studies suggest.Daily chart
The USD/JPY extended its consolidation period for another day on Tuesday, as the 200-hour SMA kept the pair from appreciating. However, the moderate trade is unlikely to last, as today's market movers are expected to give the pair a nudge and set direction for further trade.
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 57% (previously 59%), whereas 71% of SAXO Group clients retain a positive outlook towards the Greenback, up from 69%.
Spreads (avg, pip) / Trading volume / Volatility
22% of traders expect the Greenback to cost between 124.50 and 126.00 yen in three months
According to the survey conducted between July 19 and August 19, 71% of the participants expect the US Dollar to cost more than 123 yen in three months. However, the mean forecast for November 19 is 124.97. Meanwhile, the 124.50-126.00 price interval received the largest amount of votes, chosen by 22% 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.
Participants of the latest quiz for Dukascopy Community Forecasts seem to wait for more negative data to be released, as now almost 63% of votes are set short on the USD/JPY currency pair, widely supporting the Yen.
Among the minority of the traders, namely on the bullish side, WallStreet6 expects the Dollar to edge higher against the Japanese Yen. "I think the Dollar may continue its upward trend amid the September rate hike gaining on probability", he commented. Khalidamassi, a member of the Dukascopy Community, has a different perspective towards the USD/JPY, as for him the pair still seemed bearish, it was unable to break the current weekly highs. "The pair now has negative signs on the weekly chart, but a clear breakdown of 123 will open the door for 120 again", khalidamassi mentioned.