- Sell orders managed to reclaim the majority of the market, but only with 52%
- More traders hold long positions today, namely 56% of them (previously 55%)
- Nearest resistance rests around 123.85, represented by the 20-day SMA and weekly PP
- There seems to be relatively strong demand at 122.53
- 22% of traders expect the Greenback to cost between 126 and 127.5 yen in three months
- Upcoming events today: US Building Permits, US Housing Starts, Japanese Trade Balance
The US Dollar's performance over Monday was poor, as it mostly suffered losses. The largest decline of 0.46% was seen against the Aussie, following with a 0.25% drop versus the Sterling, 0.19% versus the Kiwi and 0.12% versus the Euro. However, the Greenback remained relatively unchanged against the Swiss Franc, adding 0.08%, as well as the Yen and the Loonie, gaining only 0.02% against both.
The factory survey in the New York area showed that activity in the manufacturing sector deteriorated in June. The Empire State Manufacturing Index calculated by the Federal Reserve Bank of New York fell to the negative territory this month, down from 3.1 points in May to –2.0 points this month. However, the majority of analysts surveyed were looking for a rise up to 6 points in the reporting month. The positive reading indicates improving conditions in the production sector of the New York state, while a reading below zero shows worsening conditions.
Along with production data from New York state, industrial production in the world's largest economy was published considerably worse than forecasted in May, therefore failing to lift the clouds about US economic development in the second quarter of 2015. The total output by American manufacturers, mines and utilities dropped by 0.2% last month, even though experts have foreseen a rise of 0.2%. The data follows a downwardly revised data for April, when industrial production plummeted by 0.5%, down from a 0.3% drop that was initially anticipated. Meanwhile, capacity utilisation, which is closely interconnected with the mentioned production data, was down to 78.1% in the month of June, a decrease from 78.3% seen in the preceding month.
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 Building Permits and Japanese Trade Balance
Today the US Building Permits data will be released, with the forecast predicting a declined, compared to the preceding data release. However, the data might surprise to the upside, since a rebound after winter is possible. Concerning the Japanese Trade Balance, improvements are expected, which if met might weigh on the US Dollar. The USD/JPY outcome is really unknown, since a lot of factors are to influence the pair in either direction.
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.
USD/JPY faces risks of plunging
The USD/JPY started off the week with a small 13-pip surge. Nevertheless, during the trading session the 123.80 resistance was reached, which forced the given pair to fall slightly back, minimizing the gains. Although the US Dollar advanced against the weaker Yen in the morning session, risks of the pair slumping still exist. A tough resistance cluster around 123.85 might still push the Greenback down, while technical studies emit mixed signals.
Daily chart
The resistance trend-line was easily pierced, as anticipated, with consolidation turning into a bullish trend. The possible dashing support trend-line stopped the USD/JPY from falling on several occasions and is expected to boost the given pair up today as well. Although the 200-hour SMA deems closer, increasing risks of bouncing back, it is likely to be pierced on Wednesday after the Greenback is expected to receive a massive boost.
Hourly chart
Bulls keeping the market under control
Slightly more traders hold long positions today, namely 56% of them (previously 55%). Meanwhile, sell orders managed to reclaim the majority of the market, but only with 52%.
OANDA and SAXO clients retain their bullish perspectives towards the Buck. The share of longs at OANDA edged up from 55 to 58%, while the SAXO Bank's sentiment slightly declined, 66% of traders holding long positions now.
Spreads (avg, pip) / Trading volume / Volatility
22% of traders expect the Greenback to cost between 126 and 127.5 yen in three months
According to the survey conducted between May 16 and June 16, 69% of the participants expect the US Dollar to cost more than 123 yen in three months. However, the mean forecast for September 16 is 124.5. Meanwhile, the 126.00-127.50 price interval received the largest amount votes, namely 22%.