The Greenback weakened across the board on Tuesday, sustaining rather drastic losses against most major peers. The Buck held the best against the Euro and the Japanese Yen, having fallen only 0.03% and 0.18% against them, respectively. At the same time, other significant declines were registered against the Swissie (0.55%), the Loonie (0.64%), the Sterling (0.72%) and the Kiwi (0.80%). The largest loss of 1.24%, however, was detected versus the Australian counterpart, amid the RBA's decision to leave its cash rate unchanged at 1.75%.
The US nonfarm productivity dropped less sharply than previously was forecasted in the first quarter, however labour-related costs still are high since companies employed more workers in order to boost output. According, to the Labour Department, productivity which measures hourly output per worker, contracted at an annualized rate of 0.6% versus the 1.0% pace reported in May. It is worth to point out, that revision is in line with economists' expectations. The unit labour costs also jumped to 4.5% versus an expected unchanged at 4.1%. Meanwhile, weak productivity partially explains the divergence between the economy's performance at the beginning of the year and relatively strong labour market, marked by average monthly job gains of 196,000 in the first quarter. In the meantime, productivity has only advanced in two of the last six quarters and it went up at a 0.7% rate compared to the first quarter of 2015.
By the way, some economists tried to explain weak productivity referring to the changing industry mix, which has experienced a shift from manufacturing and energy toward the production of services. Productivity accelerated at an annual rate of less than 1% in each of the last five years, suggesting the economy's potential rate of growth has losing momentum.
Vatsal Srivastava, director at the Blackwater Consulting, explained why the US Dollar advanced against the Yen last week. He said there was nothing fundamentally driving USD/JPY on Monday, but one of the key drivers was the falling oil prices, which was actually boosting the Yen; in analyst's opinion, as there was an addition cause for more QQE. Vatsal Srivastava also mentioned that "it is going to be a hard economic ride ahead and there seems to be no light on the horizon for Japan as of now." "Lets hope for the best," he summed up.
US JOLTS Job Openings is the only relevant event today
Wednesday is rather poor in terms of economic data releases that could influence the USD/JPY pair. The only possible event will be the US JOLTS Job Openings. It is released by the Bureau of Labor Statistics, it is the number of job openings during the reported month, excluding the farming industry. Even though it is released late, it can still have an impact on the market, because job openings are a leading indicator of overall employment. Early tomorrow the Cabinet Office is also to release the Japanese Core Machinery Orders, which are to set the mood for early trade on Thursday. They are the total value of machinery orders placed at major manufacturers in Japan. They are legally binding contracts between consumers and producers for delivering goods and services. The report is considered the best leading indicator of business capital spending, and increases are indicative of stronger business confidence and, therefore, as larger the number is, the positive it tends to be for the currency.USD/JPY poised for more weakness
The USD/JPY pair was rather subdued on Tuesday, as it experienced only a slight downside reaction over the day, without reaching any significant technical level. However, a stronger-than-expected Japanese GDP figure earlier today boosted the Yen, causing the pair to drop below the 107.00 mark. The support cluster around this area, represented by the Bollinger band, the monthly S1 and the 38.20% Fibonacci retracement is unlikely to let the exchange rate to keep falling. A full recovery from its intraday low would not be a surprise, however, technical indicators turned from bullish to mixed, meaning that the bearish outcome is more probable.
Today 73% of all open positions are long (previously 72%), while the sell orders are outnumbering the buy ones by only two percentage points.
There is a small but nevertheless bullish bias among OANDA and Saxo Bank traders as well. In case of OANDA, 63% of positions opened by its clients are long. Similarly, 57% of positions opened by Saxo Bank traders are long as well, down from 58% on Tuesday.
Most SWFX traders are long USD/JPY
Spreads (avg, pip) / Trading volume / Volatility
Slightly more than a half expect the exchange rate to rise above 114 yen