- The share of buy orders inched up from 60 to 65%
- Bullish market sentiment remains unchanged at 62%
- Nearest resistance rests around 123.98, represented by the weekly R1
- The closest support now lies at 123.80, namely the 20-day SMA
- 20% of traders expect the Greenback to cost between 126 and 127.5 yen in three months
- Upcoming events today: US Jobless Claims, US Core PCE Price Index, US Personal Income and Spending, US Flash Services PMI, US Natural Gas Storage
The American Dollar suffer some losses, but also appreciated against other major peers. Gains of 0.45% and 0.43% were detected against the Loonie and the Aussie, respectively, following with a smaller 0.14% gain versus the Sterling. Nonetheless, the Greenback declined versus the Kiwi (0.53%) and the Euro (0.35%), while remaining relatively unchanged against the Yen, losing 0.07%, and the Swissie, losing 0.04%.
The US economy contracted in the first quarter less than previously estimated as it struggled with bad weather, a strong US Dollar, spending cuts in the energy sector and disruptions at West Coast ports. The American gross domestic product declined at a 0.2% annualized rate, compared with the 0.7% drop reported previously, according to revised data from the Commerce Department. The data bolstered Fed's projections that the setback was temporary. The US growth was supported by robust consumer spending, which accounts for more than two thirds of US economic output. Consumer spending increased 2.1% in the reported period, up from 1.8% estimated earlier. Thanks to this upward revision, the GDP growth rate received a boost of 20 basis points. Yet, household consumption decelerated sharply after soaring 4.4% in the final quarter of last year. In addition to consumer spending, gains in inventories and home building, and a smaller decline in non-residential structures also helped boost GDP in the first quarter. While export growth was revised higher, that was offset by an upward revision to imports, leaving a still-large deficit that deducted almost 2 percentage points from GDP..
The first estimate of second-quarter GDP is scheduled for July 30. The economy is likely to expand at a 2.5% rate from April through June and average 3% growth in the last half of the year, according to the median projection of economists.
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 Final GDP
From the Japanese side there will be no data releases today, but there will be Household Spending and Tokyo Core CPI tomorrow morning. Nonetheless, the largest impact on the USD/JPY today should have the US Unemployment Claims. The number of people applying for unemployment benefits is expected to increase, and due to US GDP showing contraction in the country's economy, there is a solid chance we will see a worse figure compared to the previous one. Furthermore, the US Personal Spending and Income, both are expected to rise, but it is uncertain whether these data releases can overshadow the Jobless Claims; thus, the USD/JPY Is still likely to decline 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 fails to pierce 124; 123 in sight
On Wednesday, the US Dollar remained relatively unchanged against the Japanese Yen. However, the edged closer to the 124.50 level during the trading hours, which was supposed to provide resistance. Nevertheless, the Greenback is likely to decline today and possibly retreat to the 122.50 level, which prevented the pair from falling in several occasions. If the US fundamentals provide much worse-than-expected data, the USD/JPY might even reach a strong support cluster around 122. Meanwhile, technical indicators are showing bearish signs, bolstering the chance of a slump.Daily chart
The US Dollar struggled to remain above the 124 major level for the second day yesterday. Although volatility stretched out to 124.35, by the end of the day the USD/JPY currency pair still closed under 124. Moreover, the pair is likely to experience more weakness today and even fall under the 200-hour SMA.
Hourly chart
Bulls keep dominating the market
Bullish market sentiment remains unchanged at 62%, whereas the share of buy orders inched up from 60 to 65%.
OANDA and SAXO clients retain their bullish perspectives towards the Buck. The share of longs at OANDA declined from 57 to 54%, while the SAXO Bank's bullish sentiment remained unchanged at 63%.
Spreads (avg, pip) / Trading volume / Volatility
20% of traders expect the Greenback to cost between 126.00 and 127.50 yen in three months
According to the survey conducted between May 25 and June 25, 66% of the participants expect the US Dollar to cost more than 123 yen in three months. However, the mean forecast for September 25 is 124.86. Meanwhile, the 126.00-127.50 price interval received the largest amount votes, namely 20%, while the second choice is on the 124.50-126.00 price range, chosen by 13% of participants.
The middle of the current week is forecasted to bring some important fundamental data, namely the US Q1 Gross Domestic Product as well as Q1 personal consumption expenditures prices on Wednesday. From the Japanese side, traders could pay additional attention, to the unemployment rate, overall household spending and national core CPI. These data are expected to be announced on Thursday. Traders, however, are equally divided between bulls and bears.
Jignesh, one of the Dukascopy community members, expects the US Dollar to edge higher against the Yen by the end of the week. "The US Dollar is very well supported this week as the index is showing reversal signs around a key retracement", he said. Jignesh assumes the pair will resume its uptrend, as it has been in one of the longest uptrends amongst the majors. Aslamhammad, on the other hand, has a bearish view on the USD/JPY, as the price is moving sideways, in his opinion, and should close around 121.50.