- The portion of purchase orders returned to its Wednesday's level of 63%
- 66% of all positions are long today
- Immediate resistance is represented by the weekly and monthly R1s and the Bollinger band around 124.85
- The closest support is located at 123.59, namely the weekly PP
- 20% of traders expect the Greenback to cost between 124.50 and 126.00 yen in three months
- Upcoming events today: US Markit Manufacturing PMI, US New Home Sales
The US currency experienced mixed performance over Thursday, as it appreciated against some major peers and declined against the others. Gains of 0.62% and 0.22% were recorded against the Sterling and the Aussie, respectively, whereas the Buck declined 0.57% versus the Euro. Lesser losses were detected against the Loonie (0.16%) and the Yen (0.15%), while the American Dollar remained relatively unchanged versus the Swissie, losing 0.04%, and the Kiwi, adding 0.03%.
The number of Americans filling new applications for jobless benefits in the week ended July 18 to the lowest level in 42 years, indicating the US labour market kept a solid pace of employment growth in July. The solid jobs data along with an improving housing market brings the Fed a step closer to hiking the benchmark interest rate this year. Initial claims for unemployment benefits dropped 26,000 to a seasonally adjusted 255,000 last week, the lowest level since November 1973, according to the Labor Department. Claims for the previous week, meanwhile, remained unrevised. Nevertheless, the decline likely exaggerates the strength of the labour market as claims are volatile during summer when automakers usually shut assembly plants for annual retooling.
The four-week moving average of claims, a better measure of labour market trends as it excludes week-to-week volatility, dropped 4,000 to 278,500 last week. The four-week moving average of claims has been below the key 300,000 mark, which is associated with solid job gains, for 17 consecutive weeks, an unusually long streak. Though the four-week average rose 1,500 between the June and July, payroll growth likely remained above the 200,000 threshold this month. Payrolls increased 223,000 in June after soaring 254,000 in May. Job growth has exceeded 200,000 in 14 of the last 16 months and at 5.3%, the jobless rate is close to the 5.0%-5.2% range that the Fed considers consistent with full employment.
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 Flash Manufacturing PMI and New Home Sales
The Japanese Flash Manufacturing PMI was already released, but barely had any impact on the market, despite showing better-than-expected signs. Therefore, all focus is now laid on the US Flash Manufacturing PMI and New Home Sales. Both events are forecasted to remain flat, although the Markit Manufacturing PMI has a history of showing worse-than-expected results, whereas the New Home Sales, on the contrary, tend to rise more than anticipated. Furthermore, both events are considered to be rather important, thus, the impact on the market price should be substantial enough. The magnitude of the improvements or deteriorations will determine whether the USD/JPY is to rise or to fall 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 remains glued to 124.00
Despite expectations, a correction took place on Thursday, forcing the USD/JPY to drop below the 124.00 major level again. Nevertheless, the weekly PP keeps providing support, refusing to let the pair drop lower. As a result, the Greenback should experience a boost to regain that area today, but is unlikely to exceed the weekly high of 124.48. At the same time, technical studies retain their bullish signals, bolstering the possibility of a rally today.Daily chart
Even though the 200-hour SMA managed to hold the USD/JPY above the 123.80 level, the US Dollar keeps pushing down today. The fundamental data is to determine which way will the given pair budge; and if we see a bigger break of the 200-hour SMA to the downside, the losses are unlikely to last. Next week's fundamental is expected to boost the US Dollar either way, while the 124.00 is keeping the USD/JPY close by for the time being.
Hourly chart
Bulls still prevailing over bears
OANDA and SAXO clients retain their bullish perspectives towards the Buck. Both of their bullish shares remain unchanged since yesterday, with 55% of OANDA's traders still holding long positions and 58% of SAXO Group's being long the Greenback.
Spreads (avg, pip) / Trading volume / Volatility
20% of traders expect the Greenback to cost between 124.50 and 126.00 yen in three months
According to the survey conducted between June 24 and July 24, 60% of the participants expect the US Dollar to cost more than 123 yen in three months. However, the mean forecast for October 24 is 123.51. Meanwhile, the 124.50-126.00 price interval received the largest amount of votes, namely 20%, while the second largest choices, selected by 13% of the poll participants, implies that the US Dollar will cost between 126.00 and 127.50 yen after three months.
All in all, traders are bearish on the present pair this week, with 56.5% of responds being pessimistic. On average, traders believe the pair will decline to about the 123.7 level by the end of July 24.
Geula4x, one of the Dukascopy Community members, expects the US Dollar to advance against the Japanese Yen by week's end. He mentioned that "USD/JPY seems very bullish on the daily chart. Price has bounced significantly from the 120.50 support area. It seems that the Federal Reserve's principle decision to raise interest rates has strengthened the USD across the board." However, Jignesh, another Community member, is on the majority's side. "Without any major US data this week acting as a catalyst, the USD/JPY pair may be under some pressure", he said. Jignesh also added that as of last few sessions, we have seen the pair struggling to move higher, whilst the equities, which traditionally carry a high correlation, have done it.