- Buy orders now take up 64% of the market
- The share of bulls returned to its last Friday's level of 60%
- Nearest resistance rests around 123.84, represented by the 20-day SMA
- The closest support now lies at 122.23, represented by the weekly PP
- 21% of traders expect the Greenback to cost between 126 and 127.5 yen in three months
- Upcoming events today: FOMC Member Powell Speech, US Durable and Core Durable Goods Orders, US Flash Manufacturing PMI, US New Home Sales
The Greenback was one of the best-performing currencies on Monday, due to better-than-expected Existing Home Sales data. The largest gains of 0.68%, 0.56% and 0.54% were detected against the Kiwi, the Aussie and the Yen, respectively. Lesser gains were recorded versus the Swissie (0.43%), the Loonie (0.35%) and the Sterling (0.33%). The Euro, however, was the most resilient one, as the US Dollar only managed to add 0.10% against it.
Sales of previously owned homes rose to the highest level in more than five years in May, the latest sign that housing and overall economic growth were gaining momentum in the second quarter. Existing home sales surged 5.1% in the reported month to an annualized rate of 5.35 million, versus the 5.28 million unit sales economists had expected and following an upward revision of 5.09 million sales in April. Strong sales in May were driven partly by first-time home buyers coming back to the market. First-time buyers rose to 32% of all buyers from 27% at this time last year, according to the National Association of Realtors. Employment gains, increasing incomes and cheap borrowing costs have been propelling sales after a period of uneven demand from late 2014 through early this year. The prospect of higher interest rates as the Federal Reserve considers normalize monetary policy may be fostering more Americans to embark on homeownership.
May's strong home sales report added to last week's data on building permits in painting an upbeat picture of the housing market. It joined sturdy retail sales, consumer sentiment and employment data reports in indicating a building up of momentum in the world's number one economy after output shrank in the beginning of the year.
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 Core Durable Goods Orders
There will be no relevant data releases from the Japanese side today, but early morning there will be a report on the BoJ's Monetary Policy, which might have some impact, most likely weaken the Yen prior to the release. Nevertheless, from the US side a vast amount of data is expected. The most high-impact event is the Core Durable Goods Orders data release. Although the total value of new purchase orders for durable goods is forecasted to rise from -0.2 to 0.6%, data showed worse-than-expected figures in the previous five months, with exception over April, where the data met expectations. This might have been a sign of a rebound in Core Durable Goods Orders; thus, we should see good figures today. However, some analysts assume the order will reach -0.5% in May's release rather than showing growth.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 sets eye on the 124 area
On the fourth attempt to cross the monthly PP the USD/JPY managed to regain the bullish momentum. The immediate resistance at 123.23 was easily pierced, building more ground to rally on Tuesday. However, technical studies retain their mixed signals, while the 20-day SMA and weekly R1 provide substantial resistance around the 124 psychological level. Nonetheless, if the US fundamentals disappoint today, we might see the Greenback retreat under the 123 major level.Daily chart
As the USD/JPY rushed towards the 200-hour SMA yesterday, some weakness was experienced for a brief moment. Ultimately, the Greenback easily pierced the resistance and stabilised above the SMA. Right now the Buck keeps rising, but slowing down around 123.80. Some volatility is expected mid-day, but the given pair is unlikely to fall back under the 200-hour SMA.
Hourly chart
Bulls still dominating the market
The share of bulls returned to its last Friday's level of 60%, whereas the number of commands to acquire the Buck added six percentage points. The orders now take up 64% of the market.
OANDA and SAXO clients retain their bullish perspectives towards the Buck. The share of longs at OANDA remains unchanged at 59%, while the SAXO Bank's sentiment slightly worsened, losing four percentage points down to 65%.
Spreads (avg, pip) / Trading volume / Volatility
21% of traders expect the Greenback to cost between 126 and 127.5 yen in three months
According to the survey conducted between May 23 and June 23, 71% of the participants expect the US Dollar to cost more than 123 yen in three months. However, the mean forecast for September 23 is 125.03. Meanwhile, the 126.00-127.50 price interval received the largest amount votes, namely 21%.