- Buy commands now take up 54% of the market
- 72% of all positions are now long (previously 71%)
- Immediate resistance is represented by the monthly R1 at 125.48
- The closest support is located at 125.00, namely the weekly R1 and Bollinger band
- 19% of traders expect the Greenback to cost between 124.50 and 126.00 yen in three months
- Upcoming events today: FOMC Member Dudley Speech, US JOLTS Job Openings, US Crude Oil Inventories, Japanese Core Machinery Orders
The US Dollar appreciated against most major peers, especially against Asian currencies after the PBoC devalued the Yuan. The largest gains of 1.36%, 0.95% and 0.68% were detected versus the Aussie, the Kiwi and the Loonie, respectively. However, the Greenback still sustain a loss against the Euro, namely 0.24%, while remaining relatively unchanged against the Sterling, adding only 0.02%.
US non-farm productivity increased at a moderate pace in the second quarter as growth rose, while hiring remained steady. The productivity of nonfarm workers, measured as the output of goods and services per hour worked, climbed at a seasonally adjusted annual rate of 1.3% in the second quarter, according to the Labor Department. Productivity picked up 0.3% in the past year, far below the long-term average of 2.2%. Productivity growth has been weak since the recession, the key reason why the recovery has been sluggish. The weak productivity growth in recent years has been a puzzle for economists. It has climbed an average of just 1.3% a year from 2007 through 2014, far below the strong 2.8% average annual growth that was seen from 1995 through 2004.
Labour costs, meanwhile, climbed just 0.5% in the second quarter, a sign that wages are increasing only modestly. Labour costs rose 2.3% in the first quarter, considerably lower than the previous estimate of 6.7%. Rising labour costs can be a forerunner of inflation. However, they have been mostly stagnant since the recession. The Fed carefully monitors productivity and labour costs for signs that inflation is nearing higher levels. The increase in productivity and moderation in labour costs was to be expected given the rebound in GDP last quarter. The world's number one economy grew 2.3%.
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 JOLTS Job Openings and Japanese Core Machinery Orders
From the US side the JOLTS Job Openings, the number of job openings, excluding the farming industry, are likely to remain relatively unchanged, therefore, having a lesser impact on the Cable. However, the New York Fed President is to speak at 12:30 PM GMT today, whose speech could bring back certainty to a certain degree about a September interest rate hike or some future date this year. Furthermore, by day's end the Japanese Core Machinery Orders data is to be published, which is expected to drop dramatically. However, according to historical data, figures could turn out to be better-than-anticipated, as it occurred so during the previous six times. Finally, the PBoC's actions, which keeps devaluing the Yuan for the second day, also acts beneficially on the US currency, boosting in against the Asian peers and against the Yen as well.
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 keeps clearing the path to Dec 2002 high
The Greenback appreciated against the Japanese Yen for the second time yesterday, reaching a fresh nine-week high. Furthermore, the resistance around 125.00 was pierced, which is now providing rather strong support. Consequently, the US Dollar is expected to outperform the Yen for the third consecutive day, with gains limited by the monthly R1 at 125.48. Furthermore, the Buck is once again approaching the December 2002 high at 125.84, which could soon be pierced if the bullish momentum gets preserved.Daily chart
Although the USD/JPY broke the ascending triangle to the upside yesterday, the gains did not last. Today the Greenback began declining against the Yen, piercing the support trend-line and falling all the way down to the 200-hour SMA at 124.46. Momentum is expected to be regained, just like last Friday, but risks of edging lower 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 worsened to 54% (previously 55%), whereas 58% of SAXO Group clients retain a positive outlook towards the Greenback, down from 60%.
Spreads (avg, pip) / Trading volume / Volatility
19% of traders expect the Greenback to cost between 124.50 and 126.00 yen in three months
According to the survey conducted between July 12 and August 12, 67% of the participants expect the US Dollar to cost more than 123 yen in three months. However, the mean forecast for November 12 is 124.66. Meanwhile, the 124.50-126.00 price interval received the largest amount of votes, chosen by 19% of all poll participants, while the second largest choice, selected by 16% 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 72.7% of responds being optimistic.
Aslamhammad, one of the Dukascopy community member, has a bullish outlook towards the USD/JPY currency pair. "In my view, USD index is currently in an uptrend, so I would expect USD/JPY pair to exchange higher", he mentioned. However, a trader who expects the Yen to outpferform the Greenback, namely williamb, said that the Japanese economic situation will become worse, hence, his sentiment is bearish towards the given pair.