- The share of buy orders declined from 53 to 33%
- 46% of traders retain a positive outlook towards the USD/JPY
- Immediate resistance is represented by the 20, 55 and 100-day SMAs and the weekly R1 around 123.00
- The closest support is located around 121.00, namely the 200-day SMA and monthly PP
- 23% of traders expect the Greenback to cost between 124.50 and 126.00 yen in three months
- Upcoming events today: US ISM Manufacturing PMI, US Construction Spending, Japanese Monetary Base
The US Dollar appreciated against some major peers, but also sustained minor losses against the others. The recovered oil prices boosted the Loonie yesterday, allowing it to gain 0.74% against the Greenback, while the Yen gained 0.16% and the Euro added 0.11%. Nevertheless, the US Dollar appreciated 1.72% against the Kiwi, amid poor New Zealand business confidence reading, following with a 0.42% gain against the Swissie, 0.41% versus the Aussie and 0.34% against the Sterling..
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 ISM Manufacturing PMI
The most important even from the US side today is the ISM Manufacturing PMI. The given data release is significant, due to the manufacturing sector taking up a large portion of the GDP, thus, providing insight on overall economic conditions in the US. The given PMI was declining since the beginning of July, suggesting that we might see another poor reading today; however, last week's strong GDP data suggests otherwise. As a result, secondary data from the US are likely to help influence the Greenback's price as well. The US Construction Spending, released by the Census Bureau, is an indicator that measures the total amount of spending in the US on all types of construction and is expected to decrease as well, putting more pressure on the US currency. At the end of the day, the Japanese Monetary Base is due, with weaker figures anticipated. Ultimately, the magnitude of the changes in US PMI is likely to be the main driver today.
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 tests support cluster around 121.00
The USD/JPY currency pair brought no surprises on Monday, as trade maintained within the borders of the 200-day SMA and monthly S1. Even though the Greenback remains supported by the 121.00 major level, now bolstered by the 200-day SMA and the monthly PP, technical studies still suggest the Buck is to experience more weakness today. A break through the given support is likely to cause a decline towards the 120.00 psychological level, reinforced by the weekly PP; however, the US Dollar might still rebound and surge towards 121.94, namely the previous week's high.Daily chart
The USD/JPY currency pair kept testing the 200-hour SMA yesterday, until the tide was finally turned. The Buck slumped today, breaching the support trend-line, with no signs of regaining the bullish momentum, at least on the hourly chart.
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 62 to 56%. Meanwhile, 56% of SAXO Group clients retain a positive outlook towards the Greenback, down from 58%.
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 01 and August 01, 63% of the participants expect the US Dollar to cost more than 123 yen in three months. However, the mean forecast for December 1 is 123.12. 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.