- The share of buy orders edged up from 49 to 53%
- 71% of traders hold long positions
- Nearest resistance rests around 124.40, represented by the weekly R2 and Bollinger band
- The closest support now lies at 123.45, namely the weekly R1 and monthly PP
- 21% of traders expect the Greenback to cost between 124.50 and 126.00 yen in three months
- Upcoming events today: US Core Retail Sales and Retail Sales, US Import Prices, US Business Inventories, Japanese Monetary Policy Statement, BoJ Press Conference
The Greenback was one of the best-performing currencies on Monday, as it advanced against other major peers. Huge gains if 1.43% and 1.23% were detected against the Euro and the Swissie, respectively. At the same time, the Sterling and the Kiwi stood most resilient, losing only 0.20% and 0.36% against the Buck, respectively.
Estimates of growth in the US gross domestic product from the Federal Reserve Bank of Atlanta, Macroeconomic Advisers and Barclays Capital suggest the world's biggest economy rebounded in the second quarter after the winter slump. The US economic output is predicted to have risen at an annual rate of above 2%, after contracting in the first three months of the year at a 0.2% pace. The estimates bolster the broadly held opinion among economists and policy makers that the US economy's winter weakness was caused by temporary factors such as bad weather and West Coast port closings. If the economy's growth meets expectations, this increases the chances the Fed will hike short-term interest rates later this year.
The Atlanta Fed GDPNow tracker estimates the US GDP rose at a 2.3% annualized rate in the three months through June. Macroeconomic Advisers' prediction is a bit rosier, with the firm predicting a 2.8% growth rate amid signs of inventory build-up during the quarter. The company expects the same gain in the July-though-September period. Meanwhile, Barclays Capital's tracker suggests the economy grew 3.7%, up from 3.5% estimated earlier. Fed officials said they remain on track to begin raising the benchmark federal funds rate from near zero by year end.
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 Retail Sales and Japanese Monetary Policy Statement
From the US side one should pay the most attention to the Retail Sales data release, as it accounts for the majority of overall economic activity. The forecast stands at 0.2%, down from 1.2% in the previous month. Tomorrow, on the other hand, the BoJ is to make a statement concerning its monetary policy, mainly the decision on interest rate hike. Although it could boost the Yen in the early hours tomorrow, the Fed head's testimony tomorrow is likely to outweigh the BoJ' Statement. As a result, the American Dollar should outperform the Japanese currency both today and tomorrow.
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 still plots new course
The US Dollar surprised with its performance on Monday, as it appreciated against the Yen instead of declining. Moreover, the two nearest resistance clusters failed to prevent the USD/JPY from rising, while it stabilised at 123.60. All signs are showing towards a possible correction today, but the market is focused on the US fundamental data now, which tends to bring surprises. From the technical point of view, we should see the Buck rally towards 124.20 today, while the fundamental part suggests a correction to 122.85 is likely to occur instead.Daily chart
Although the USD/JPY reached the resistance trend-line of the channel yesterday, the pair did not bounce back down, but consolidated for the most of the day. A slight step back did take place, but only to rebound from the lower border of the pattern today. From here on, the US Dollar is expected to keep rising against the Yenup until 124.80.
Hourly chart
Bulls keep dominating the market
Market sentiment weakened again, with 71% of traders holding long positions, while the share of buy orders edged up from 49 to 53%.
OANDA and SAXO clients retain their bullish perspectives towards the Buck. The share of longs at OANDA edged down from 59 to 56%, while the SAXO Bank's sentiment remained unchanged, with 59% of their traders still holding long positions.
Spreads (avg, pip) / Trading volume / Volatility
21% of traders expect the Greenback to cost between 124.50 and 126.00 yen in three months
According to the survey conducted between June 14 and July 14, 60% of the participants expect the US Dollar to cost more than 123 yen in three months. However, the mean forecast for October 14 is 123.77. Meanwhile, the 124.50-126.00 price interval received the largest amount of votes, namely 21%, while the second choice is now taken by the 120.00-121.50 price range, chosen by 15% of participants.