- The number of purchase orders declined from 65 to 53%
- The bullish traders increased from 59 to 62%
- Immediate resistance is represented by the monthly S1 at 121.31
- The closest support is located around 121.06, namely the 200-day SMA
- 23% of traders expect the Greenback to cost between 124.50 and 126.00 yen in three months
- Upcoming events today: US Chicago PMI, Japanese Capital Spending, US ISM Manufacturing PMI, Japanese Final Manufacturing PMI
The Greenback sustained minor relatively minor losses over the weekend, while appreciating against most major peers. The Buck lost 0.44% versus the Swissie and 0.03% against the Sterling, while gains of 0.52%, 0.39%, 028%, 0.27% and 0.23% were registered against the Aussie, the Loonie, the Euro, the Kiwi and the Yen, respectively.
US consumer spending rose a bit in July as households purchased more automobiles, adding to further evidence of strength in the economy that could keep the door open to a Fed interest rate hike this year. The Commerce Department reported consumer spending—the lifeblood of the US economy, which accounts for more than two-thirds of US economic activity, climbed 0.3% following an upwardly revised 0.3% increase in June. Meanwhile, personal income, reflecting Americans' pre-tax earnings from salaries and investments, rose 0.4%, replicating the gains of the previous three months. The price index for personal consumption expenditures, the central bank's preferred inflation gauge, inched up 0.1% from June and 0.3% from a year earlier. Core prices, which excludes food and energy costs, ticked up 0.1% from June and 1.2% from a year earlier. July marked the 39th straight month in which prices have undershot the Fed's 2% annual target.
Other data suggest underlying strength in the US economy. Gross domestic product expanded 3.7% in the second quarter. Retail sales increased healthily in July, and the housing market is showing momentum, with robust pickups in sales of existing and new homes last month. At the same time the labour market continues to show strength. The latest data is likely to influence debate within the Fed about when and how quickly to hike short-term interest rates.
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 Chicago PMI and Japanese Capital Spending
The only relevant to the USD/JPY pair event is the Chicago PMI. The given PMI is used to indicate the overall economic conditions in the US, as it is interrelated with the ISM Manufacturing Index. The forecast stands at 54.50, down from 54.70; although it is a decline, the number still remains above 50, thus, being relatively bullish to the US currency. Later today, the Ministry of Finance is to release the Japanese Capital Spending, which is expected to improve and strengthen the Yen. Ultimately, the USD/JPY risks edging lower.
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 in tight range between 200-day SMA and monthly S1
The Greenback appreciated against the Yen for the third consecutive day last Friday, closing trade at 121.73. However, the bullish momentum appears to have vanished, as the pair began declining on the weekend. Right now the US Dollar is stuck between the monthly S1 and the 200-day SMA, with neither of the important levels giving in. The base case scenario is still a decline to as far as 120.50, as technical studies retain their bearish signals. Nonetheless, we should not rule out the possibility of a rally up to 122.00, amid a broadly weaker Japanese currency.Daily chart
The US Dollar keeps rising along the trend-line, but momentum appears to be slowing down. The USD/JPY recently approached the 200-hour SMA, which provided sufficient resistance to keep the Greenback from appreciating further. As a result, the US currency risks breaching the support trend-line this week.
Hourly chart
Bulls still prevailing over bears
OANDA and SAXO clients retain their bullish perspectives towards the Buck. The share of bulls at OANDA edged lower from 65 to 62%. Meanwhile, 58% of SAXO Group clients retain a positive outlook towards the Greenback, down from 60%.
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 31 and August 31, 65% of the participants expect the US Dollar to cost more than 123 yen in three months. However, the mean forecast for December 1 is 123.33. Meanwhile, the highest number of poll participants, namely 23%, suggest that the US currency will cost between 124.50 and 126.00 yen in three months, while the second largest choice, selected by 21% of the surveyed, implies that the US Dollar will cost between 123.00 and 124.50 yen.