- The share of purchase orders dropped 23 percentage points, down to 44%
- Bullish traders' sentiment remains unchanged at 73%
- Immediate resistance is represented by the weekly S2 at 119.10
- The closest support is located around 118.78, namely the monthly S2
- 22% of traders expect the Greenback to cost either between 123.00 and 124.50 yen or between 124.50 and 126.00 yen in three months
- Upcoming events today: US HPI, US Markit Services PMI, US CB Consumer Confidence, US New Home Sales, Japanese SPPI
The US Dollar weakened against some major peers, amid the Chinese stock market turmoil, while strengthening against the broadly weaker commodity currencies. The Greenback added 2.56% versus the Kiwi, 1.04% versus the Aussie and 0.50% versus the Loonie, while sustaining a 2.34% loss against the Yen, 1.76% against the Euro and 1.51% against the Swissie. A lesser decline was registered against the Sterling, only 0.55%.
Lawrence Summers, a former Treasury Secretary, opposed an interest rate hike this year, as it may risk bringing some parts of the financial system into crisis and leading to unpredictable and dangerous outcome. One of the biggest areas of concern is inflation, which is below the Fed's 2% goal and according to Summers an interest rate lift-off could have a negative impact. Moreover, the higher borrowing costs will also increase the value of the US Dollar, which in turn will make "US producers less competitive and pressuring the economies of our trading partners."
Meanwhile, Dennis Lockhart, Federal Reserve Bank of Atlanta President, continues to expect the interest rate hike this year, while saying that a stronger US Dollar, a weak Chinese Yuan as well as declining oil prices cloud the growth outlook. Within the US, however, the policy maker anticipates moderate job growth, increasing inflation and strong consumer spending. Moreover, Lockhart also predicts an improvement in business spending, excluding the energy sector, and gains both in wages and productivity. Amid an ongoing US stock market rout and concerns of China's hard landing, some economists have pushed back their expectations for a rate increase until later in the year, or even into 2016. Monday's panicked selloff even led to some talk of the Fed extending quantitative easing, rather than raising rates.
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 CB Consumer Confidence
The focus on fundamental data remains unchanged since yesterday, namely on the CB Consumer Confidence due today at 14:00 PM GMT. The Consumer Confidence shows the survey results of households, that rated the current and future economic and business conditions. Improvements are expected, suggesting the overall situation in the US is stabilising. To back this up, the New Home Sales, which are due at the same, are also forecasted to rise, compared to the preceding release. Japanese fundamentals bring no changes in the forecasts today and are not as significant in order to determine the USD/JPY pair's movement today.
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 retake 120.00
The Greenback plummeted against the Japanese Yen yesterday, with volatility to the downside exceeding 550 pips. Ultimately, the USD/JPY pair stabilised below 119.00, at the lowest in three months. The Buck is poised to recover and retake the 120.00 major level, despite technical indicators showing mixed signs. The Bollinger band and the weekly S1 around 120.25 form the second resistance area, while the monthly S2 supports the given pair from below. However, we should not rule out the possibility of another slump, due to broad Dollar weakness and a stronger Yen.Daily chart
As anticipated, the USD/JPY currency pair suffered even heavier losses, as seen on the hourly chart. However, it is considered, that the current downtrend is over and the pair should start recovering. Right now the 120.00 major level is providing obstacles and preventing the pair from edging higher; once it is retaken, growth should become more stable. Meanwhile, risks of falling deeper down still persist.
Hourly chart
Bulls still prevailing over bears
OANDA and SAXO clients retain their bullish perspectives towards the Buck. The share of bulls at OANDA returned to its Friday's level of 63%, down from 64%. Meanwhile, 57% of SAXO Group clients retain a positive outlook towards the Greenback.
Spreads (avg, pip) / Trading volume / Volatility
22% of traders expect the Greenback to cost either between 123.00 and 124.50 yen or between 124.50 and 126.00 yen in three months
According to the survey conducted between July 25 and August 25, 64% of the participants expect the US Dollar to cost more than 123 yen in three months. However, the mean forecast for November 25 is 123.31. Meanwhile, the highest number of poll participants, namely 22%, suggest that the US currency will cost either between 123.00 and 124.50 yen or between 124.50 and 126.00 yen in three months, while the second largest choices, selected by 12% of the surveyed each, imply that the US Dollar will cost between 117.00 and 118.50 yen or between 120.00 and 121.50 yen.