- The number of purchase orders edged up to 54%
- Bulls take up 74% of the market
- Nearest resistance rests around 122.95, represented by the monthly S1
- The closest support now lies at 120.79, namely the weekly S2
- 20% of traders expect the Greenback to cost between 124.50 and 126.00 yen in three months
- Upcoming events today: US Jobless Claims, FOMC Member Brainard Speech, Japanese PPI and Japanese Consumer Confidence
After strengthening on Tuesday, the US Dollar experienced mixed performance over Wednesday. The Greenback suffered a 1.49% loss against the Yen and a 1.18% loss versus the Kiwi. Gains of 0.65%, 0.32% and 0.31% were detected against the Sterling, the Loonie and the Aussie, respectively. The Swiss Franc had the most trouble outperforming the Buck, as the American Dollar declined only 0.14% against it.
The minutes of the latest FOMC meeting showed Fed officials were worried about the possible effect of the Greek debt crisis on the US economy. They also voiced concerns about future growth in China, the world's second largest economy, and other emerging markets. The developments abroad could potentially derail the US economy in part by pushing the US Dollar higher and hurting US exports. Thus, central bankers agreed that there were still a number of uncertainties both at home and overseas to lift interest rates from all-time lows. While economists had predicted the US central bank to hike interest rates in September, the recent deadlock on Greek debt and the precipitous plunge in China's stock market have urged many experts to expect a delay until the end of the year. However, policy makers highlighted the rebound that had occurred in the US since it stalled in the beginning of the year. The progress was seen in various sectors including manufacturing and housing.
The International Monetary Fund reiterated its view that the Fed should be patient with interest rate hike, as the think-tank downgraded markedly the growth outlook for the world's number one economy. The IMF cut the estimate for 2015 growth to 2.5%, down from the 3.1% forecast in the April World Economic Outlook. It predicted GDP growth would pick up to 3% next year, followed by a 2.7% gain in 2017 and 2.5% growth in 2018.
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 Jobless Claims
From the US side, we should pay attention to the US Jobless Claims, like every Thursday. The figures are forecasted to improve, but the Unemployment Claims tend to have small changes on the exchange rate. The Fed pays close attention to the Labor Market and is awaiting for improvements in order to decide how early to raise interest rates in the US, making the Jobless Claims a high-value report. Nevertheless, from the Japanese side the only relevant events will be tomorrow early morning, namely the Japanese PPI, which is expected to show no improvements, while the Japanese Consumer Confidence is likely to rise. The US Dollar should outperform the Yen today, as well as on Friday.
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 rebound after sharp slump
The USD/JPY sustained heavy losses on Wednesday, much more than anticipated. The Bollinger band was unable to prevent the pair from falling at 121.60, which cause the Greenback to decline even under the 121.00 major level. Due to this gradual plunge, a rebound is likely to take place today, despite technical studies retaining bearish signals. The 121.00 level should be retaken and perhaps even the 122.00 mark if the US fundamental provide a sufficient boost for the Buck.Daily chart
The US Dollar experienced a lot of pressure versus the Japanese Yen, after consolidating for two days since the beginning of the week. The Greenback declined over 200 pips, until it reached the 120.40 level, a fresh six-week low. The USD/JPY appeared to have bounced back, in hopes of erasing some of the losses today.
Hourly chart
Bulls keep dominating the market
SWFX traders' sentiment remains unchanged, with bulls taking up 74% of the market. Meanwhile, the number of purchase orders edged up three percentage points, up to 54%.
OANDA and SAXO clients retain their bullish perspectives towards the Buck. The share of longs at OANDA edged higher, from 61 to 63%, while the SAXO Bank's sentiment weakened further, with 65% of their traders hold long positions, compared to 70% yesterday.
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 09 and July 09, 61% of the participants expect the US Dollar to cost more than 123 yen in three months. However, the mean forecast for October 09 is 124.18. Meanwhile, the 124.50-126.00 price interval received the largest amount of votes, namely 20%, while the second choice is now taken by the 126.00-127.50 price range, chosen by 16% 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".