- The number of purchase orders takes up 48% of the market
- 60% of all positions are long (previously 56%)
- Immediate resistance is represented by the monthly PP at 120.85
- The closest support is located around 119.80, namely the weekly PP
- 21% of traders expect the Greenback to cost between 124.50 and 126.00 yen in three months
- Upcoming events today: FOMC Member Lacker Speech, US Average Hourly Earnings, US Non-Farm Employment Change, US Unemployment Rate
The Greenback experienced mixed performance over Thursday, declining against some major peers and appreciating against the others. Loonie outperformed the Buck due to positive fundamental data in Canada, while the US Dollar lost 0.42% against the Yen and 0.37% against the Kiwi. Gains of 0.80%, 0.39%, 0.35% and 0.31% were recorded versus the Euro, the Swiss Franc, the Aussie and the Sterling, respectively.
The US trade deficit shrank to the lowest level in five months in July, as exports rose marginally, while imports dropped. The shortfall narrowed to $41.9 billion in July, booking a 7.4% decrease from a June imbalance of $45.2 billion, according to the Commerce Department. Exports climbed 0.4% to $188.5 billion, driven by stronger sales of US-made autos and machinery, while imports declined 1.1% to $230.4 billion. So far this year, the deficit is running 3.6% above the 2014 level, reflecting weaker export sales. Concerns are mounting that US growth will be hurt by further decreases in exports, reflecting a stronger Dollar and overseas weakness, particularly in China. A precipitous slowdown in China has shacked financial markets in recent weeks as investors have become worried that weakness in the world's second largest economy could have a more adverse effect on global growth.
Meanwhile, a separate report showed initial claims for state unemployment benefits surged 12,000 to a seasonally adjusted 282,000 for the week ended August 29. The four-week moving average of claims, considered a better measure of labour market trends as it strips out week-to-week volatility, rose 3,250 to 275,500 last week. It was the 23rd consecutive week that the four-week average remained below the 300,000 threshold, which is usually associated with an improving labour market.
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 Unemployment Rate, Average Hourly Earnings and Non-Farm Employment Change
No significant events from the Japanese side are due today, which turns all attention to the US Unemployment rate, the Average Hourly Earnings and Non-Farm Employment Change. The Payrolls, released by the US Department of Labor, presents the number of people on the payrolls of all non-agricultural business, the forecast for which stands at 220 thousand, up from 215 thousand. However, with rather poor ADP figures on Wednesday, we might see the data fail to meet expectations today. Nevertheless, the Unemployment Rate is forecasted to decrease, which is a good sign of a possible improvement in the labor market. At the same time, the Average Hourly Earnings is to be released, which is expected to remain unchanged. The Fed pays close attention to all these figures, as it is the last group of labor data before the Fed meets later this month to discuss its monetary policy; therefore, strong readings of these data should make the Fed raise interest rates in September, rather than the rumoured December.
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 remains under the risk of reaching 2015 low
On Thursday, the Greenback sustained minor losses against the Japanese Yen, as anticipated. The weekly PP was tested, but trade still closed slightly above the 120.00 major level; however, the given PP risks being pierced today, despite having kept the USD/JPY from declining through the week. Poor labour figures are likely to push the US Dollar deeper down all the way to 118.00, as that would delay the interest rate hike. Conversely, strong data could boost the Buck above 121.50, reaching the highest point in the last two weeks.Daily chart
Although the USD/JPY pierced the 200-hour SMA to the upside, the pair was unable to hold the gains and trade above it. As a result, the Greenback fell to the 120.00 major level, breaching it early morning today. Right now the US Dollar is struggling to remain above this week's low, awaiting for the labor data to decide its fate.
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 higher from 61 to 63%. Meanwhile, 56% of SAXO Group clients retain a positive outlook towards the Greenback, down from 57%.
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 August 4 and September 4, 54% of the participants expect the US Dollar to cost more than 123 yen in three months. However, the mean forecast for December 4 is 123.03. Meanwhile, the highest number of poll participants, namely 21%, suggest that the US currency will cost between 124.50 and 126.00 yen in three months, while the second largest choices, both selected by 15% of the surveyed, imply that the US Dollar will cost either between 123.00 and 124.50 yen or between 120.00 and 121.50 yen.
Only 27% of participants in the weekly quiz suggested the pair would develop to the north last week. This week's forecasts, however, are favouring the Greenback's bullish tendency, but an advantage of long votes is insignificant, namely 52% vs 48% for bears. Moreover, according to the majority of traders, we are unlikely to see a strong recovery, as the mean forecast for Friday of this week is located at 120.5.
On the bullish side we have Tommaso, who suggests that "the pair seems oriented to test again the 122.50 mark; daily MCD shows an uptrend direction for the week, with the sentiment of the market focused now on the next move of the Fed in September." With a different opinion and on the bearish side, Jignesh believes that the USD/JPY has been following the equity markets extremely closely, especially after last week's major one day drop. "This week, as the equities approach pre-crash levels, we may see market participants looking to reducing exposure to the unusual increased volatility seen recently", Jignesh said. As a result, he stated that the mentioned correlation will be followed by the USD/JPY, which starts the week with retesting a major weekly up trend-line.