- The share of purchase orders declined from 44 to 40%
- More than two thirds (70%) of traders are now long the Buck
- Monthly PP represents resistance around 119.93
- Support is around 119.30 (weekly S1 and the Bollinger band)
- 68% of traders see the Dollar higher than 120 yen on Jun 1
- Upcoming events today: US ISM Manufacturing PMI, US Construction Spending, US Natural Gas Storage, FOMC Member William Speech, Japanese Household Spending, Japanese Unemployment Rate and Japanese Monetary Base
The US Dollar experienced mixed performance on Tuesday, as it appreciated against some major peers and declined against the others. Gains of 0.19%, 0.14% and 0.08% were detected versus the Loonie, the Sterling and the Aussie, respectively, while the Greenback also declined 0.27% against the Kiwi, 0.20% against the Swissie and 0.15% versus the Yen. Furthermore, the EUR/USD remained relatively unchanged, climbing up 0.05%.
American companies increased the pace of job creation in September, according to the data released by the ADP Research Institute on Wednesday. Employment climbed by 200,000 last month, up from a revised 186,000 in August. The indicator has also overcome estimates for hiring gains of 190,000 in September. Continuing improvement of US economy helped to step up additions to companies' headcount as they benefited from healthy inland demand, even though some companies faced challenged overseas and especially in China. By sectors of employment, the fastest advance was registered in trade and transportation industry. Construction and business services followed, while manufacturing posted the sharpest decline since 2010 by around 15,000 in September.
Meanwhile, despite several FOMC members saying that the regulator is on track of raising interest rates this year, futures for the Federal Funds rate are largely pessimistic about the move in 2015. Data compiled by Bloomberg reveals that a hike probability surpasses 50% only by March 2016, while the odds are only 41% percent for the December Fed meeting.
In response to the latest Bank of Japan meeting, Stuart Allsop, head of financial market strategy at BMI Research, said that no action from the central bank was expected and that they are likely to "refrain from doing any more stimulus this year". However, he noted that "the risks have increased".
Concerning the GDP growth, the analyst doubts that it will "get above 1% anytime in the foreseeable future". The reasons for this are manifold. First, there is "a huge headwind in terms of demographics". Additionally, there is a decline in growth of China coupled with global economic slowdown. However, the main negative factor provided by Allsop is a "very unstable production structure". He explains that the real interest rate is negative, which is "sending contradictory signals to the real economy", and this in turn leads to a low chance of "a productivity boom
As for the Japanese Yen, Allsop is bullish on the currency. In his opinion there are two main contributing factors. The first one is that "investors lose faith in the willingness of the BoJ to act. At the same Allsop adds that the Yen has proven recently its status as a global safe have, and this is beneficial for the value of the currency being that "global financial markets are looking quite shaky", which is negative for the risk sentiment. At the same time, the analyst mentioned that USD/JPY "may fall quite significantly in the coming months", and if this is the case, "this would raise the prospects of intervention from the BoJ."
US ISM Manufacturing PMI and Japanese Household Spending
The Institute for Supply Management is to release the Manufacturing PMI, which captures business conditions in the manufacturing sector. As the manufacturing sector dominates a large part of total GDP, the manufacturing PMI is an important indicator of business conditions and the overall economic condition in the United States. Although the data is expected to be worse than before, according to the forecasts, the US Dollar might still advance against other major peers due to lack of market reactions from the given release, as changes are expected to be minor. Furthermore, a number of data release after the PMI figures are published could help the Greenback climb higher. From the Japanese side the Household Spending is anticipated to improve, while the unemployment rate is likely to remain unchanged. Even with positive data it is going to be difficult for the Yen to outperform the buck, amid rising concerns of the BoJ extending its monetary easing.
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 makes head against the tide
The Greenback managed to rebound yesterday, with the upside volatility reaching the weekly PP at 120.33. Even though technical indicators retain their bearish signals, the US Dollar is likely to extend its gains today. However, with the beginning of the new month, the monthly PP shifted to the 119.93 mark, which is providing resistance quite close to the opening price. However, the USD/JPY has already pierced the two immediate resistances and is on the verge of piercing the third one and prolonging its rally, amid rising concerns of further easing from the BoJ.Daily chart
The Greenback's attempts to stabilise above the 120.00 major level were in vain again, as the 200-hour SMA pushed the exchange rate back down. However, the USD/JPY is support by an up-trend, meaning that the pair is still growing steadily and a breach of the 120.00 mark is to occur sooner than later.
Hourly chart
Bulls preserve majority
OANDA and SAXO Bank also report minor preponderance of bullish market participants. In the first case the longs take up 60% of the market (65% previously). In the second case 60% of open positions are long, unchanged since yesterday.
Spreads (avg, pip) / Trading volume / Volatility
68% of traders see the Dollar higher than 120 yen on Jun 1
The average Dukascopy website visitor expects the US Dollar to cost almost 2 yen more in three months' time. Almost a quarter of survey participants (23%) estimates that the Greenback will be worth between 121.50 and 123 yen by the mid-December. At the same time, it is worth mentioning that 62% of the forecasts are above 121.50 and 68% of the given forecasts are set above the level of 120 yen.
This week overall sentiment remained negative, as slightly more than 45% of traders expect the pair to close below the 120.00 level in the end of the present working week, while the average expectation stays just below this level.
Nuonrg, one of the participants of the weekly Community forecasts, believes that "after forming a bearish flag, still the long uptrend is in place as a bull flag." Nuonrg suggests that in order to prove the upside, the pair has to break the 121.00. "Last candles seem choppy range, but today seems firm up. Therefore, I am in favour of a long-run," the trader added. Joining the bears this week, rokasltu, another member of the Dukascopy Community, expects the USD/JPY to fall deeper down. "I think even NFP data will not influence rate much as it resides near mark which satisfies both buyers and sellers," rokasltu commented on the matter.