- The share of buy orders declined from 51 to 48%
- Although not as strong as yesterday, but market sentiment remains bullish at 64%
- Immediate resistance is represented by the monthly PP, weekly R1, 20 and 200-day SMAs around 121.00
- The closest support is located around 119.71, namely the weekly PP
- 16% of traders expect the Greenback to cost either between 121.50 and 123.00 yen or between 124.50 and 126.00 yen in three months
- Upcoming events today: US Jobless Claims, US Import Prices, US Crude Oil Inventories, Japanese BSI Manufacturing Index
The Greenback appreciated against most major peers on Wednesday, with a rapid improvement of the global sentiment. The largest gains were recorded against the Kiwi, the Aussie and the Loonie, adding 1.76%, 1.06% and 0.60%, respectively. The USD/JPY, however, remained relatively unchanged, adding only 0.12%, while the US Dollar also suffered a 0.28% loss versus the Swiss Franc and 0.10% versus the Euro.
The Fed's comprehensive measure tracking the health of the US labour market improved for the fourth straight month in August. The Labor Market Conditions Index rose to the highest level in eight months of 2.1 points last month from an upwardly revised 1.8 points in July, previously reported as 1.1 points. The gauge rebounded this summer after decreasing to negative territory for the first time in three years in spring. Nevertheless, it is averaging 1.8 points over the past three months, which is markedly less than the nearly 4 points reported over the same period last year. The data comes on heels of the government's monthly employment report. The numbers showed the jobless rate fell to 5.1%, the lowest in seven years. However, the increase in payrolls fell short of the market's expectations, as nonfarm payrolls increased 173,000 last month since the manufacturing sector lost the most jobs since July 2013, following an upwardly revised 245,000 rise in July. Nevertheless, the numbers were still within the normal seasonal volatility associated with the start of the new school year.
Fed policy makers gather in Washington next week to weigh pros and cons of hiking interest rates for the first time in almost a decade. While the nation's labour market continues to improve to warrant a hike, the inflation outlook remains cloudy and the global economy underperforms. Hence, analysts remain divided about the odds of September rate hike.
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 Import Prices and Japanese BSI Manufacturing Index
The US Jobless Claims at this point will doubtfully have any effect with only a week left till the Fed's Rate Hike decision, while the poor Import Prices figures could help the USD/JPY pierce the immediate support at 119.71. Furthermore, near day's end the Japanese BSI Manufacturing Index, which mostly showed poor figures in the previous several releases, might also positively influence the USD/JPY.
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 keeps testing 121.00
The tough resistance cluster around 121.00 held its ground, although the USD/JPY did reach the highest point of the cluster, namely the 200-day SMA. Nevertheless, the pair was pushed back and remained relatively unchanged over the day, adding only 13 pips. The Yen remains under pressure and is likely to allow the Buck to rise again today; however, we should not rule out the possibility of slump, as the group of levels around 121.00 keeps blocking the path. Furthermore, technical studies remain bearish, but downside volatility refuses to drop below 120.00 for the second day in a row.Daily chart
The Greenback's rally was stopped around the 121.25 mark, forcing the USD/JPY to fall back down, erasing daily gains. Today's volatility was also prevented by the same area, which could also throw the US Dollar back to the 200-hour SMA near 120.10.
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 down from 65 to 63%. Meanwhile, 55% of SAXO Group clients retain a positive outlook towards the Greenback, down from 58%.
Spreads (avg, pip) / Trading volume / Volatility
16% of traders expect the Greenback to cost either between 121.50 and 123.00 yen or between 124.50 and 126.00 yen in three months
According to the survey conducted between August 10 and September 10, 49% of the participants expect the US Dollar to cost more than 123 yen in three months. However, the mean forecast for December 10 is 122.71. Meanwhile, the highest number of poll participants, namely 16%, suggest that the US currency will cost either between 121.50 and 123.00 yen or between 124.50 and 126.00 yen in three months, while the second largest choice, selected by 15% of the surveyed, implies that the US Dollar will cost between 126.00 and 127.50 yen.
The middle of the current week is forecasted to bring some important fundamental data, namely the release of revised data on Japanese second quarter economic growth, as well as data on the current account on Tuesday. The next day, Japan is going to announce data on machinery orders and to round up the week with the BSI manufacturing index. From the American side, traders could pay additional attention to the initial jobless claims release on Thursday and Friday's data on producer prices as well as consumer sentiment.
Sharsense, a member of the Dukascopy Community, supports the bulls, who take up two thirds of the market. "Yen seems to be driven by the difference between the US 10-year treasuries bonds and the Japanese bonds. It still acts as a safe-haven", sharpsense said. He expects the USD/JPY to stay in the sideway range between 115.9 and 121.5. Nevertheless, a trader with a bearish outlook towards the Greenback, namely csan86, suggests that the price formed a huge double top on the daily chart, therefore, he is expecting a very strong bearish domination. "The price has been moving in a narrowing range and it has formed a symmetrical triangle since the last week. This triangle is on the huge double top's neckline (120.70) which is a very strong support for more bearish movement approximately to 116.20", the trader explained.