- The share of purchase orders declined from 68 to 61%.
- Bullish market sentiment returned to its Monday's level of 73%
- Nearest resistance rests around 123.40, represented by the weekly PP
- The closest support now lies at 123.26, 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 Non-Farm Employment Change, US Unemployment Rate, US Average Hourly Earnings, US Jobless Claims, US Factory Orders
The Greenback was one of the best performing currencies on Wednesday, as it appreciated against most major peers. The largest gain was recorded against the Swissie, 1.38%, following with lesser gains versus the Aussie, Loonie and the Euro, adding 0.81%, 0.77% and 0.76%, respectively. The New Zealand Dollar was the toughest to advance against, as the US Dollar managed to climb only 0.46% against it.
US private employers created more jobs than expected in June, indicating further improvement in the labour market, which may justify US interest rate hike later this year. According to the payroll firm ADP, US private sector added 237,000, following the revised 203,000 in May and overshooting economists' expectations for an upturn to 218,000. The ADP figures are released prior to the US Labor Department's more comprehensive non-farm payrolls report on Thursday, which includes both public and private-sector employment. Economists predict total US employment to have increased by 230,000 jobs in June, down from May's 280,000 gain. The unemployment rate was expected to slide to the lowest level in seven years of 5.4% from 5.5%.
Separately, US manufacturing growth accelerated in June, as the ISM manufacturing PMI rose to 53.5 in the reported month, up from 52.8 in May. The ISM report showed factory orders and employment in June stood at their highest levels since December 2014. The employment indicator rose to 55.5 from 51.7, adding to signs that many companies expect additional orders in the coming months and are hiring in advance. The measure of new orders edged up slightly to 56 from 55.8. Manufacturing growth has accelerated in the past two months, a sign US factories have begun to adapt and overcome hurdles caused by a stronger US Dollar and lower oil prices.
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 Non-Farm Employment Change and Unemployment Rate
From the Japanese side there will be no more relevant data releases until next week, but a number of US releases are due later today, with most of them at 12:30 PM GMT. The most important one will be the US Non-Farm Employment Change, which shows the number of people employed during the previous month, excluding the farming industry. The number of payrolls is expected to decline, but according to the historical data, there is a solid chance of the data turning out to be better-than-expected. Moreover, the Unemployment Rate, due at the same time, is likely to fall down, which is a good sign for the Non-Farm Payrolls, that could show improved figures, compared to the forecast. As a result, the USD/JPY is likely to edge lower by the end of the day.
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 aims to retake 124.00
The American Dollar overperformed the Japanese Yen on Wednesday, as it breached through the immediate resistance cluster around 123.00. The USD/JPY skyrocketed to 123.33, with the 20-day SMA limiting the gains. Right now the pair is stuck between the 20-day SMA and monthly PP, but is likely to break out of the cage to the upside later today. Unless the fundamental data disappoints, we could see a hike up to the 124.00 major level, which is also bolstered by the weekly R1.Daily chart
The USD/JPY reached the 200-hour SMA yesterday, as anticipated. However, the currency pair then bounced back under the 123.00 major level, only to appreciate even further and pierce the SMA. The pair has been climbing up ever since and is giving no sign of changing course, therefore, the only thing to prevent the rally is last Friday's high at 124.00.
Hourly chart
Bulls keep dominating the market
Bullish market sentiment returned to its Monday's level of 73%, whereas the share of purchase orders declined from 68 to 61%.
OANDA and SAXO clients retain their bullish perspectives towards the Buck. The share of longs at OANDA, however, edged down from 61 to 60%, while the SAXO Bank's sentiment slightly weakened as well, as 73% of their traders hold long positions, compared to 75% yesterday.
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 June 02 and July 02, 67% of the participants expect the US Dollar to cost more than 123 yen in three months. However, the mean forecast for October 02 is 124.83. Meanwhile, the 126.00-127.50 price interval received the largest amount votes, namely 20%, while the second choice is still the 124.50-126.00 price range, chosen by 16'% 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.