- The share of purchase orders edged up from 69 to 70%
- Traders' sentiment remains unchanged at 74%
- Immediate resistance is represented by the weekly PP at 123.93
- The closest support is located around 123.403, namely the 20 and 55-day SMAs, the weekly S1 and monthly PP
- 25% of traders expect the Greenback to cost between 124.50 and 126.00 yen in three months
- Upcoming events today: US Pending Home Sales, US Crude Oil Inventories, FOMC Statement and Federal Funds Rate
The US Dollar sustained serious losses on Tuesday, as it appreciated only against the Euro and the Yen. The Buck lost 1.28% against the Kiwi, 0.97% versus the Aussie and 0.83% versus the Loonie, following with a rather small 0.31% decline against the Sterling. Gains of 0.24% and 0.22% were detected against the Yen and the Euro, respectively, while the Greenback remained relatively unchanged against the Swiss Franc, losing only 0.06%.
US consumers mood darkened in July, as households were worried about current and future job growth, and rattled by events in China and Greece. The Conference Board reported that its index of consumer confidence dropped to 90.9 this month, hitting the lowest level since September. June's reading was revised to show 99.8, down from originally reported 101.4. The present situation index, an indicator of consumers' assessment of current economic situation, slid to 107.4, compared with a revised 110.3 in June, originally put at 111.6. Consumer expectations for economic activity over the next six months plummeted to 79.9 from a revised 92.8, initially estimated at 94.6. The report showed that consumer were less optimistic about the labour market. Some 20.7% of consumers this month thought jobs are "plentiful," down from 21.3% in June. Another 26.7% described jobs as "hard to get" in July, up from 26.1% saying that in the prior month. The share of respondents anticipating more jobs in the next six months fell to 13.1% in July from 17.1% in June. The share expecting fewer jobs surged to 20.0% from 15.2%.
Consumers' perceptions about the labour markets could play into the Fed assessment of the economy and interest rates. The US central bank started a two-day meeting on Tuesday and will release a policy statement later in the day.
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."
FOMC Statement
The markets are primarily focusing on the Federal Open Market Committee Statement, which was anticipated for quite some time now. In the previous Statement, the Fed indicated that the US economy is growing, after slowing down in winter. The Fed should also grow more confident to finally raise interest rates, although the Fed's Chair stated that the rate decision is dependent on whether the labor market and inflation are strong enough. The Fed is also expected to provide insight on the date of the rate hike, since September is looming closer. However, at this point, any news about an approximate date are likely to strengthen the US currency and we should see the US Dollar advance against the Yen.
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 awaits FOMC Statement; boost inbound
Although the USD/JPY advanced on Tuesday, the 124.00 was not reached. Apparently, the US Dollar's bullish momentum weakened after piercing the tough resistance area around 124.40, but, nevertheless, the given cluster is now providing substantial support. As a result, the Greenback is expected to maintain its rally and climb above the 124.00 psychological level. Nonetheless, risks of falling back towards 123.00 still persist, as the Fed might provide a more dovish statement today. Meanwhile, technical indicators keep supporting the possibility of the Buck outperforming the Yen.Daily chart
Even though the USD/JPY regained the bullish momentum after Monday's plunge, the pair was still unable to reach the 200-hour SMA. Nevertheless, the given SMA is expected to allow the US Dollar to climb higher and negate half of last week's losses.
Hourly chart
Bulls still prevailing over bears
OANDA and SAXO clients retain their bullish perspectives towards the Buck. The share of bulls at OANDA slightly declined from 60 to 59%, whereas 70% of SAXO Group clients retain a positive outlook towards the Greenback.
Spreads (avg, pip) / Trading volume / Volatility
25% of traders expect the Greenback to cost between 124.50 and 126.00 yen in three months
According to the survey conducted between June 29 and July 29, 64% of the participants expect the US Dollar to cost more than 123 yen in three months. However, the mean forecast for October 29 is 123.91. Meanwhile, the 124.50-126.00 price interval received the largest amount of votes, chosen by a quarter of all poll participants, while the second largest choice, selected by 13% of the surveyed, implies that the US Dollar will cost between 117.00 and 118.50 yen after three months.
This week traders' expectations changed notably, as now 71% of Dukascopy Community members estimate the pair to gain in value.
Tommaso, a trader with a positive outlook towards the USD/JPY currency pair, assumes that the June's correction seems finished and the pair looks ready to reach higher targets. "Probably during the next week the pair could reach 124.50 level", he said. Nevertheless, another poll participant, Direct, is short the Greenback. He expects the given pair to edge closer to the 55-day SMA, which implies that the Buck is to weaken against the Japanese Yen.