- The percentage of buy commands has plummeted to 57% since the last report
- The dip may extend down to 118
- Fingraphs.com: USD/JPY to trade in the 1.23-1.25 region in the next few months
- Upcoming events: US Consumer Confidence, Chicago PMI
Japan's government adopted an emergency fiscal stimulus package worth 3.5 trillion yen to boost the nation's economy, which was hit by higher prices due to sales tax increase in April as well as the Yen's sharp weakening. The stimulus scheme is aimed at providing financial assistance designed to offset soaring fuel costs and help local governments. $9.96 billion will be used to support consumers and companies, about $4.98 billion for revitalization of local communities and $14.11 billion for disaster prevention and reconstruction. Coupled with a delay of the second planned consumption tax hike to 10% by 18 months from October 2015, analysts expect the package to fuel domestic demand. It is predicted that the new programme will boost Japan's real gross domestic product by around 0.7 percentage points.
Meanwhile, Japan's Prime Minister Shizno Abe and the ruling Liberal Democratic Party have approved a plan to cut the corporate tax rate by 3.29 percentage points, with a 2.51% reduction in 2015 and additional cut in the following fiscal year. Moreover, companies will be able to deduct R&D costs worth 25% of corporate taxes from their tax payments, compared with the current maximum deduction of 30%. There will also be changes in taxes paid by individuals, including income tax breaks for housing loan borrowers to support the housing market.
Tuesday to be dominated by US Consumer Confidence
While previously JPY crosses were exposed to Japanese macroeconomic data, the rest of the week it is the US Dollar that is going to be the most significant currency in the market. Today all the attention is to be directed at the Consumer Confidence. Tomorrow the focus will already shift to the state of the labour market (Initial Jobless Claims). Meanwhile, Friday is going to tell whether the growth rate of the manufacturing sector is accelerating.
USD/JPY is losing against 121
Despite all the recent attempts of USD/JPY to conquer 121, the weekly and monthly R1 levels stay intact. But once this resistance gives in, the 2014 high at 122 may not be able to stop further advancement of the currency pair. Meanwhile, the US Dollar is set to cede some of the recently gained ground. Considering absence of any notable supports nearby, the dip may extend down to 118, where it will meet the lower boundary of the bullish channel.Daily chart
On a high-frequency chart USD/JPY effortlessly pierced through the long-term moving average and plunged down to a significant support at 119.50. If the price closes beneath this level, there will be no obstacles capable of preventing decline towards the 118.00/117.50 area. On the other hand, short-term bullish intentions will be confirmed in case USD/JPY recovers above 120.
Hourly chart
Sentiment still different across the brokers
The percentage of buy commands has plummeted since the last report — from 76 to 57%, implying the most important support 100 pips from the current price may have been broken.