- 65% of orders are now to acquire the Greenback
- Only 67% of traders are long the US currency today
- Immediate resistance is represented by the Bollinger band at 124.49
- The closest support is located around 123.90, namely weekly PP and 20-day SMA
- 23% of traders expect the Greenback to cost between 124.50 and 126.00 yen in three months
- Upcoming events today: US ADP Non-Farm Employment Change, US ISM Non-Manufacturing PMI and US Trade Balance, US Final Services PMI, US Crude Oil Inventories
The US Dollar appreciated against most major peers, amid one of the Fed officials backing the view of a September rate hike. However, the Aussie was an exception, as the Greenback lost 1.35% against it. Largest gains of 0.92%, 0.61% and 0.46% were detected versus the Swissie, the Euro and the Kiwi, respectively. The Buck also remained relatively unchanged against the Sterling, adding only 0.14%.
New orders for US factory goods recovered strongly in June amid robust demand for transportation equipment and other goods, a positive sign for the nation's struggling manufacturing sector. According to the Commerce Department, new orders for manufactured goods surged 1.8% following the 1.1% decline in May. Factory activity was hurt by a strong US Dollar as well as spending cuts in the energy sector after last year's steep drop in crude oil prices. Weak global demand also weighed on business activity in the manufacturing sector, which makes up 12% of the US economy. Even though there are signs that the energy spending drag is waning, the Greenback strength will likely to remain a hurdle. The US Dollar has risen 15% versus major counterparts since June 2014. Orders for transportation equipment soared 9.3% in June, reflecting a 65.4% surge in aircraft bookings.
The Commerce Department also reported orders for non-defense capital goods excluding aircraft, considered as a measure of business confidence and spending plans, rose 0.7%, compared with the 0.9% increase reported last month. Shipments of core capital goods, used to calculate business equipment spending in the GDP data, climbed 0.3% in June. Manufacturing inventories grew a solid 0.6%, which was more than the government estimated in its second-quarter GDP report published last week.
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 ADP Non-Farm Employment Change, US ISM Non-Manufacturing PMI and US Trade Balance
Several important data releases from the US are scheduled for today, which are more likely to influence the given currency pair. First of all, the ADP Non-Farm Employment Change, which accounts for the majority of overall economic activity, is forecasted to worsen. The strong employment market together with other strong data would bring back confidence in the solid US economic growth, backing the September interest rate hike view. Although the forecast stands at 215,000 jobs, down from 237,000, the ISM Non-Manufacturing PMI is expected to improve, but slightly. Furthermore, the Non-Manufacturing PMI was declining for the past two months and the tables are unlikely to turn just yet. Finally, the US Trade Balance, which is to have a lesser impact on the American Dollar, namely the USD/JPY currency pair, as last week the Goods Trade Balance was released, which provided insight on the Trade Balance. According to the Goods Trade Balance, the overall US Balance is likely to exceed the expectations to the downside, putting more pressure on the Greenback.
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 to remain stuck around 124.00
The US Dollar slightly overperformed, as it appreciated 34 pips against the Japanese Yen, rather than expected 25. The USD/JPY, however, risks falling back down, despite bullish technical indicators. The upper Bollinger band retains its role as the immediate resistance and is likely to prevent the Greenback from edging higher, same as yesterday. As a result, we should see the Buck slide down to the 124.00 support cluster, unless the US fundamentals surprise with better-than-expected figures.Daily chart
Not only did the US Dollar bounce off the support trend-line and 200-hour SMA, it also confirmed the trend-line for the second time at 123.87 yesterday. Ultimately, the USD/JPY negated last Friday's losses on Tuesday; but the pace has slowed down after that. If the Buck sustains losses again today, the newly-formed support line should limit the fall around 124.00.
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 worsened, from 68 to 55% whereas 61% of SAXO Group clients retain a positive outlook towards the Greenback, down from 63%.
Spreads (avg, pip) / Trading volume / Volatility
23% of traders expect the Greenback to cost between 124.50 and 126.00 yen in three months
According to the survey conducted between July 05 and August 05, 72% of the participants expect the US Dollar to cost more than 123 yen in three months. However, the mean forecast for November 05 is 124.71. Meanwhile, the 124.50-126.00 price interval received the largest amount of votes, chosen by 23% of all poll participants, while the second largest choice, selected by 14% of the surveyed, implies that the US Dollar will cost less than 118.50 yen.
All in all, traders are bullish on the present pair this week, with 60% of responds being optimistic. During this week, on Friday, the Bank of Japan is to announce its benchmark interest rate and publish the rate statement. Later in the day, the US is to round up the week with the closely watched government report on nonfarm payrolls.
Geula4x is on the majority's side of the Dukascopy traders, as he believes the USD/JPY is bullish on the daily chart. "Price has bounced from 123.00 round number support area at July 27, it seems that the Fed principle decision to raise interest rates has strengthened the USD against the JPY", he said. Geula4x also mentioned that resistance lies around 124.50, which has capped the price multiple times, starting at June 17. Nevertheless, aslamhammad has a bearish outlook, as he believes that "on Friday we had a double top in the US Dollar index, so I think by next Friday we will see the USD close lower."