- The share of purchase orders returned to its Wednesday's level of 51%
- Exactly three thirds of traders are now holding long positions
- Nearest resistance rests around 122.705, represented by the 20 and 55-day SMAs and the weekly PP
- The closest support now lies at 121.61, namely the weekly S1
- 21% of traders expect the Greenback to cost between 124.50 and 126.00 yen in three months
- Upcoming events today: US Wholesale Inventories, Fed's Yellen Speech
The US Dollar appreciated against most major peers, with exception against the Yen and the Sterling. The largest gains were detected versus the Loonie (0.62%) and the Euro (0.44%), following with lesser ones of 0.29% and 0.22% against the Aussie and the Swissie, respectively. The Greenback declined 0.23% versus the Sterling and 0.18% against the Yen, while remained relatively unchanged against the Kiwi, adding 0.06%.
The number of people applying for unemployment benefits rose more than expected in the week ended 4 July. However, the increase was likely due to temporary auto plant shutdowns rather than underlying weakness in the labour market. US initial jobless claims rose by 15,000 to 297,000 last week, according to the Labor Department, hitting the highest level since 327,000 applications were filed in the last week of February. Even with the recent rises, benefit applications, which are a proxy for layoffs, remain at low levels indicating a strengthening labour market that has enjoyed solid employment gains. The four-week moving average for claims, which smooths out the week-to-week volatility, climbed to 279,500, up slightly from 275,000 a week earlier. It was the highest level for the four-week average since early May. At the same time continued claims rose 69,000 to 2.334 million in the week ended June 27, the Labor Department added.
The government reported last week that the unemployment rate fell to a seven-year low of 5.3% in June, while employers added 223,000 jobs. It was the lowest jobless rate since April 2008, when it stood at 5.0%. Even though unemployment has declined, other labour market measures have not performed as well, a fact that Fed Chair Janet Yellen often refers to when explaining why the Fed has not yet started raising interest 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."
Fed's Yellen Speech
The USD/JPY has gained ground, as both Japanese data releases showed worse-than-expected figures today. That leaves us with the only mover for today, namely Janet Yellen's speech. Volatility is expected during her speech, as traders will closely pay attention to what she has to say about the monetary policy. Due to poor conditions in the labor market, to which the Fed pays a lot of attention, the interest rate hike is likely to be postponed till the end of 2015, if there will be any this year at all. This leaves the US Dollar in a risky position, especially with too much uncertainty in the market.
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 try and negate Wednesday's plunge
The USD/JPY currency pair appreciated yesterday, but was unable to reach the 122.00 major level. With the Yen now weakening, the Greenback is likely to advance against it. A strong resistance cluster is located around 122.70., while from below the US Dollar is supported by the weekly S1. Despite expectations, technical studies keep suggesting the Buck is to weaken again today. We should not rule out this possibility, as a slump back under 121.00 could occur after Fed Chair's Speech today.Daily chart
Upon reaching the 121.40 low on Wednesday, the US Dollar managed to rebound and has been rising ever since. Right now the Greenback is edging closer to the 122.00 psychological level, while the 200-hour SMA rests only at 122.36. The SMA could force the USD/JPY to bounce back, but if breached, gains are likely to become more stable.
Hourly chart
Bulls keep dominating the market
Market sentiment improved again, as exactly three thirds of traders are now holding long positions. The share of purchase orders, however, returned to its Wednesday's level of 51%.
OANDA and SAXO clients retain their bullish perspectives towards the Buck. The share of longs at OANDA returned to its Wednesday's level of 61%, while the SAXO Bank's sentiment weakened further, with 68% of their traders hold long positions, compared to 65% yesterday.
Spreads (avg, pip) / Trading volume / Volatility
21% of traders expect the Greenback to cost between 124.50 and 126.00 yen in three months
According to the survey conducted between June 10 and July 10, 64% of the participants expect the US Dollar to cost more than 123 yen in three months. However, the mean forecast for October 10 is 124.24. Meanwhile, the 124.50-126.00 price interval received the largest amount of votes, namely 21%, while the second choice is now taken by the 120.00-121.50 price range, chosen by 15% of participants.
Based on all fundamental predictions, Dukascopy weekly quiz participants became much more bullish on the US Dollar, as now 72.5% of all votes are placed on the long side. On the other hand, the average forecast for this Friday stays at 123.00.
Khalidamassi, a member of the Dukascopy community, is in the majority of traders, who believe the US Dollar will outperform the Japanese Yen this week. "The USD/JPY still move in a range between 122 and 124, any clear break above 124 will move the pair strongly higher, any clear break below will move the pair lower", he said. However, there are also those, who assume the Yen is to weigh on the Greenback, and geula4x is one of them. He mentioned that the USD/JPY could turn bearish this week, as the Greek referendum vote result caused uncertainty, which in turn causes strong risk aversion in the markets. Therefore, geula4x concludes that investors prefer JPY over the USD as a "safe haven".