- The number of orders to acquire the Greenback declined from 64 to 59%
- Exactly three quarters of traders hold long positions today
- Immediate resistance is represented by the 20-day SMA at 124.30
- The closest support is located at 123.65, namely the weekly S1, 55-day SMA and the lower Bollinger band
- 23% of traders expect the Greenback to cost between 124.50 and 126.00 yen in three months
- Upcoming events today: US Jobless Claims, US Existing Home Sales, US Philly Fed Manufacturing Index
The US Dollar declined against most major peers on Wednesday, after the inflation report disappointed with its figures. However, the Greenback advanced 0.50% versus the Loonie, but declined 1.19% and 0.79% against the Swissie and the Euro, respectively. The Kiwi and the Sterling held most resilient, as the Buck lost only 0.13% against both of them.
While Fed officials were satisfied with the progress in the US economy this year, they appeared concerned over the persistent sluggishness of price inflation. Minutes of the Fed's most recent meeting showed that policy makers were almost ready to hike rates as they expected the US economy's steady upward trajectory to eventually push prices up. Yet, inflation continues to defy those predictions. The biggest decline in airline fares in almost two decades slowed consumer inflation in July after two months of slightly faster growth. According to the Labor Department, consumer price index inched up 0.1% in July, compared with the 0.3% and 0.4% increases in July and May, respectively. At the same time, core inflation, which excludes energy and food, climbed a modest 0.1% in the reported month, following the 0.2% gain in June. Measured on an annual basis, consumer prices were 0.2% higher, while core inflation rose 1.8%. Thus, Fed voting members remained divided on whether long-anticipated September rate hike was justified.
Some officials were worried about moving prematurely and lacking tools to respond if unanticipated events led the US economy to falter, and also about threats from developments overseas, particularly slowing growth in China. As a result, some experts said the uncertain tone of the meeting minutes suggested the central bank was less likely to begin normalizing monetary policy at its next meeting, while investors reduced their bets on a September lift-off.
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 Existing Home Sales and Philly Fed Manufacturing Index
From the Japanese side no significant events are due today, while from the US side, the Philly Fed Manufacturing Index, which is also expected to improve today, might counterweight on the USD/JPY. Furthermore, the US Existing Home Sales, that shows the annualized number of residential buildings sold in the previous month, except for new construction, is forecasted to decline slightly. Even though the previous readings were rather strong, a worse-than-expected figure might extend the Greenback's decline after the poor inflation data yesterday, building up more concerns about the Fed interest rate hike.
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 attempts to restabilise above 124.00
The USD/JPY currency pair reached the tough support cluster at 123.65, which pushed the Greenback slightly back up. Ultimately, the Buck closed trade just under the major level of 124.00 at 123.92. Although the pair remains close to the strong cluster of supports, risks of falling even closer persist, the US Dollar is struggling to pierce the 124.00 psychological level and technical indicators shifted from bullish to mixed. The base case scenario, however, is a rally towards 124.30, namely the 20-day SMA.Daily chart
Upon reaching the 200-hour SMA, the USD/JPY currency pair sustained rather serious losses and dropped as low as 123.70. However, the bullish momentum appears to have been restored. The Buck has a good chance of advancing against the Yen, as the Japanese economy got pressured by China once again.
Hourly chart
Bulls still prevailing over bears
OANDA and SAXO clients retain their bullish perspectives towards the Buck. The share of bulls at OANDA improved to 60% (previously 57%), whereas 67% of SAXO Group clients retain a positive outlook towards the Greenback, down from 71%.
Spreads (avg, pip) / Trading volume / Volatility
23% of traders expect the Greenback to cost between 124.50 and 126.00 yen in three months
According to the survey conducted between July 20 and August 20, 73% of the participants expect the US Dollar to cost more than 123 yen in three months. However, the mean forecast for November 20 is 125.23. Meanwhile, the 124.50-126.00 price interval received the largest amount of votes, chosen by 23% of all poll participants, while the second largest choice, selected by 18% 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.