- The number of orders to buy the Buck edged up from 61 to 69%
- Market sentiment remains bullish at 73%
- Nearest resistance rests around 124.45, represented by the weekly R2 and the Bollinger band
- The closest support now lies around 123.45, namely the weekly R1 and monthly PP
- 19% of traders expect the Greenback to cost between 124.50 and 126.00 yen in three months
- Upcoming events today: US Jobless Claims, Fed Chair Yellen Testimony, Philly Fed Manufacturing Index
The Greenback gained value against most major peers over Wednesday. The US Dollar gained 1.85% versus the Kiwi, 1.45% against the Loonie and 0.98% against the Aussie, following with lesser gains against the Swiss Franc, the Euro and the Yen. Nevertheless, the Buck remained relatively unchanged against the British Pound.
Wholesale prices in the US rose more than expected last month as the cost of fuel increased, reinforcing the view inflation is slowly climbing from historically weak levels. The producer price index, measuring prices at which companies sell goods and services, picked up to a seasonally adjusted 0.4% in June following the 0.5% rise in the preceding month, according to the Labor Department. At the same time, core prices, which exclude volatile energy and food components, increased 0.3% in the reported month, marking the biggest leap since October last year. A broad pickup in prices would reinforce the case for the Fed to begin lifting interest rates this year, as the central bank is keeping a close watch on inflation trends as a part of its dual mandate. The personal consumption expenditures index, the Fed's preferred inflation measure, climbed 0.2% in May from a year earlier and has been below the Fed's 2% target since May 2012.
Janet Yellen, the Fed Chair, said that Fed officials expect growth "to strengthen over the remained of the year and the unemployment rate to decline gradually". If the economy performs in line with central bankers' expectations, it will be appropriate at some point this year to start raising the benchmark funds rate. Yet, Yellen underlined that the timing of the rate hike is less important than the subsequent path of increases, which are expected to be gradual.
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 fundamental data to drive the USD/JPY
From the US Side, as every Thursday, we have the US Jobless Claims data release. Although it is an important event, the market reaction tends to be not as crucial. Nevertheless, later today the Philly Fed Manufacturing Index is expected to show a worse-than-before figure, thus nullifying any positive effect the Jobless Claims are to have on the exchange rate. Furthermore, Fed's Head is to testify for the second day today, but her tone is expected to remain unchanged, without any new information to be heard. Meanwhile, from the Japanese side there are no any significant events scheduled until next week.
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 attempts to climb over 124.00
The US Dollar underperformed yesterday, as it was unable to reach the target price level. Moreover, the Greenback tested only the 124.00 major area, which limited the daily gains. The American Dollar is expected to receive another boost today, bringing the pair closer to the resistance cluster around 124.45, namely the weekly R2 and the upper Bollinger band. However, if the fundamental data disappoints, we could see the pair retreat to the support area around 123.45 instead.Daily chart
Even though the USD/JPY currency pair left the ascending channel, the US Dollar keeps outperforming then Yen and is climbing steadily. However, the 124.00 major level is an obstacle yet to be overcome, , but risks of falling persist, as the pair is on the verge of exiting the possible ascending triangle pattern to the downside.
Hourly chart
Bulls keep dominating the market
Although not as strong as yesterday, but market sentiment remains bullish at 73% (previously 74%). At the same time, the number of orders to buy the Buck edged up from 61 to 69%.
OANDA and SAXO clients retain their bullish perspectives towards the Buck. The share of longs at OANDA slightly declined from 59 to 58%, while the SAXO Bank's returned to its Tuesday's level of 59% (compared to 65% previously).
Spreads (avg, pip) / Trading volume / Volatility
19% of traders expect the Greenback to cost between 124.50 and 126.00 yen in three months
According to the survey conducted between June 16 and July 16, 61% of the participants expect the US Dollar to cost more than 123 yen in three months. However, the mean forecast for October 16 is 123.82. Meanwhile, the 124.50-126.00 price interval received the largest amount of votes, namely 19%, while the second choice shifted to the 126.00-127.50 price range, chosen by 16% of participants.
As the currency cross managed to hover around the same level from Monday to Friday, Dukascopy traders became much more bullish on their future view of pair's development, being that 62.5% of respondents are now waiting the US Dollar to fall in value. The median forecast for Friday of this week slipped to 123.70 from the current trading level.
Aslamhammad, one of the Dukascopy Community members expects the US Dollar to outperform the Yen today. He back up his statement by saying that "currently, Yen is weak and all pairs have been appreciating against, so my sentiment is bullish for USD/JPY on Friday 17th of July." Rokasltu, on the other hand, still assumes the Yen might weigh on the Greenback. He believes that as the Yen rebounds, the USD/JPY pair will move down towards an important 120 mark, as a deeper correction is possible this week.