- Purchase orders now take up 67% of the market
- Market sentiment remains bullish at 72% (previously 73%)
- Nearest resistance rests around 123.02, represented by the weekly PP
- The closest support now lies at 122.53, namely the monthly PP
- 23% of traders expect the Greenback to cost between 126 and 127.5 yen in three months
- Upcoming events today: US CB Consumer Confidence, US Chicago PMI, Japanese Tankan Manufacturing and Non-Manufacturing Indexes, Japanese Final Manufacturing PMI
The US Dollar experienced mixed performance over the weekend and yesterday. Gains were only registered against the Canadian Dollar, adding 0.67%, while the largest declines of 1.06% and 0.90% were registered against the Yen and the Swissie, respectively. Furthermore, the Greenback remained relatively unchanged against the Kiwi, losing 0.09%, and the Sterling, advancing 0.06%.
Contracts to buy previously owned US homes jumped to the highest level in more than nine years in May, adding to signs the US housing market is gaining steam after a wobbly start to the year. According to the National Association of Realtors, the index of pending home sales rose 0.9% to a seasonally adjusted 112.6, the highest since April 2006. The April gauge was revised down to 111.6 from 112.4. Pending home sales surged 10.4% from the previous year. The housing market recovery is back on track after being derailed by harsh weather at the beginning of the year. It is being supported by a tightening labour market, which is helping to underpin some pick-up in wage growth.
Last week NAR reported a sharp increase in existing home sales following a decline in April. First-time home buyers also began making their way back to the real-estate market in May. Sales of existing homes surged 5.1% in May to a seasonally adjusted rate of 5.35 million, the highest level since November 2009. However, existing home sales, which make up around 90% of the market, are still well below their prerecession peak, when they exceeded 6 million and even topped 7 million for part of 2005. Prices have also been climbing lately. The median price of an existing home in May was $228,700, or 7.9% higher than in May 2014.
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 CB Consumer Confidence and Japanese Tankan Non-Manufacturing Index
The Japanese Average Cash Earnings early today turned out to be slightly worse than the forecast, but nonetheless, the Yen still received a boost and is weighing on the Greenback. Furthermore, at 17:00 GMT the US CB Consumer Confidence index is to be posted. According to the forecasts, the index is being expected to show improvements and unless the fundamental data disappoints. Even though the Consumer Confidence might shift the odds into US Dollar's favour, early morning tomorrow a number of Japanese data releases might turn the tide again. The Tankan Non-Manufacturing Index is to show improvements, while the Final Manufacturing PMI is likely to remain unchanged. The USD/JPY is to experience some volatility in the upcoming couple of days.
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 stuck within the borders of 122 and 123 levels
Despite reaching the 123 major level, the USD/JPY remained relatively unchanged on Monday. The pair advanced only eight pips, with risks of falling deeper down. Nevertheless, the Bollinger band and the 55-day SMA keep bolstering the 122 major level, providing strong support, which might cause the US Dollar to bounce back up. From the upside the target remains the same, namely the 123 psychological level, while technical studies retain their mixed signals.Daily chart
After rather serious volatility, the USD/JPY failed to remain above the 123 major level. As a result, the given pair suffered more losses and keeps falling down today. The 122 psychological level is holding for now, but unless the US Dollar rebounds in the second half of the day, the area is likely to be breached.
Hourly chart
Bulls keep dominating the market
Although not as strong as yesterday, but market sentiment remains bullish at 72% (previously 73%). The share of purchase orders also declined, now taking up only 67% of the market, compared to 78% yesterday.
OANDA and SAXO clients retain their bullish perspectives towards the Buck. The share of longs at OANDA edge up from 58 to 59%, while the SAXO Bank's sentiment improved again, as 71% of their traders hold long positions.
Spreads (avg, pip) / Trading volume / Volatility
23% of traders expect the Greenback to cost between 126.00 and 127.50 yen in three months
According to the survey conducted between May 30 and June 30, 68% of the participants expect the US Dollar to cost more than 123 yen in three months. However, the mean forecast for September 30 is 124.91. Meanwhile, the 126.00-127.50 price interval received the largest amount votes, namely 23%, while the second choice is on the 124.50-126.00 price range, chosen by 14% of participants.
Community Forecasts
The majority of traders expect the US Dollar to edge lower against the Yen. Khalidamassi, one of those traders, commented that the "USD/JPY moved strong up last week towards 124, that is good for pair, but the bad thing is that the pair is unable to clearly break and close above last week's high, so USD/JPY is still seen to be vulnerable up and down next week". However, aslamhammad, a trader with a bearish outlook towards the Greenback, expects the pair to go up around 124-125 yen, as he expects the non-farm employment change to be better-than-expected.