- Risk-aversion boosts dollar in the second half of the week.
- Japanese statistics offer limited scope for quick for recovery.
- US consumer economy showed strength in May but June is still a question.
Risk parameters proved they are still the dominant consideration of the currency markets as rising coronavirus cases in the United States and elsewhere brought the USD/JPY back above 107.00 on Thursday after spending five sessions weakening and penetrating as far as 106.07 on Tuesday, the lowest for the pair since early May.
Japanese statistics presented little material for economic optimism.
Manufacturing sentiment from Jibun Bank fell slightly in June from May’s more than decade low offering small hope that the downturn might be swiftly reversed. The sector has been in contraction for 14 months and has fallen steadily this year from 48.8 in January with June the lowest reading of run. Tokyo CPI gave further evidence of negligible price pressures despite the Bank of Japan bond purchases, with the annual rate falling to 0.3% in June, half the forecast, from 0.4% in May.
In contrast, American statistics provided some positive news with durable goods orders in May returning almost 90% of their April plunge. Manufacturing and services purchasing managers indexes for June rose sharply with factory sentiment nearly reaching expansion.
The percentage increase in new home sales was almost five times its prediction as first time buyers took advantage of the lowest mortgage rates on record. Personal spending in May seconded the performance of retail sales and durable goods, gaining 8.2%, erasing two-thirds of the 12.6% April decline and trumping the 9% forecast.
American consumers were widely expected to return to the stores with their usual panache but how much of the welcome rebound was from two months of deferred spending and what will be the carry over into June is an open question.
Unemployment claims have been near 1.5 million for three weeks belying two forecasts for a drop to 1.3 million though continuing claims did fall below 20 million for the first time in eight weeks.
The return to risk pricing was not emphatic and unless the pandemic again forces widespread business closures the prospective dollar premium will be small.
It appears the viral disposition is considerably different this time, at least in the United States. Cases are rising steeply in some places, and part of the gain is due to increased testing, but there has not been a concomitant rise in fatalities. Some urban areas are reporting increases in virus hospitalizations but all areas seem to be far better prepared than in March and April.
Economic statistics are still a secondary consideration for markets attendant on pandemic developments but for the USD/JPY the rebounding American data will form a base for the pair.
Unless there is a dramatic development in the pandemic the technical aspects of the USD/JPY will order trading in the week ahead as they have since the second week of June. The unusually symmetrical outside range is 106.00 to 108.00 with closer boundaries at 106.50 and 107.50.
Japanese statistics June 22-June 26
Jibun Bank manufacturing PMI for June at 37.8 was better than the 36.9 forecast but down from May’s 38.4 and the 14th straight negative month. It was the lowest reading since March 2009.
The Coincident Index which tracks the overall economy dropped to 80.1 in April from 81.5 in the weakest scores since March 2008.
The leading economic index for April fell to 77.7 from 84.7 in March the weakest since May 2009.
The All Industry Activity Index slipped to -6.4% in April from 3.4% in March. The previous low was -6.3% in March 2011.
Tokyo CPI dropped to 0.3% on the year in June, half the forecast, from 0.4% in May. Core CPI was 0.4% y/y as expected, down from 0.5%.
Japan statistics June 22-June 26
US statistics June 22-June 26
Existing home sales, 90% of the US housing market, dropped 9.7% to 3.91 million annualized in May from 4.33 in April, 4.12 million had been projected.
IHS Markit manufacturing PMI rose to 49.6 in June from 39.8 in May on a 48 prediction. Services increased to 46.7 from 37.5 on a 46.5 forecast.
New home sales jumped 16.6% to 0.676 million annualized in May from0.58 million in April, 0.64 million had been anticipated.
Durable goods orders rose 15.8% in May well ahead of the 10.9% predictions after an 18.1% drop in April. Orders ex-transport rose 4% following the 8.2% fall in April. Non-defense capital goods orders, the business investment proxy climbed 2.3% on a 1% forecast, after falling 6.5% in April.
First quarter GDP was confirmed at -5% annualized.
Initial jobless claims rose 1.48 million in the June 19 week, more than the 1.3 million forecast though down from 1.54 million the prior week. Continuing claims slipped to 19.522 million in the June 12 week from 20.289 million previously.
Personal spending in May rose 8.2%, under the 9% estimate and about two-thirds of the April 12.6% loss. Personal income fell 4.2% in May, less than the 6% forecast and the 10.8% gain in April. A decline in income was expected as the CARES Act stipends were paid in April but not May.
The PCE price index added 0.1% on the month 0.5% on the year in May up from -0.5% monthly and 0.6% in April. The core index rose to 0.1% in May from -0.4% in April and was unchanged at 1% on the year.
US statistics June 22-June 26
Japanese and US statistics summary June 22-June 26
The Japanese and US economies touched bottom in April but the recovery seems to have arrived for American manufactures in June and for consumers in May. The US Markit PMI rose to near parity while the Jibun bank PMI dropped to its lowest reading since the financial crisis, capping a year of falling scores.
The Coincident and All Industry Indexes for Japan reinforced the April plunge falling to multi-year lows.
Part of the discrepancy is that the US has reported consumer figures for May that confirm a strong, if not yet permanent recovery in spending and Japan’s May data begins on Monday.
Perhaps the forecasts for a continued fall in retail trade in Japan, -11.7% in May from -22.1% in April will be gainsaid by the Japanese consumer but the prediction comes in the context of sales that have fallen in nine of the last 12 months.
The consumer driven US economy appears able to recover faster than the export led Japanese model, and that will eventually lend support to the USD/JPY.
Japan statistics June 29-July 3
US statistics June 29-July 3
USD/JPY technical outlook
The restricted range this week, opening at 106.87 and closing at 107.34 left the relative strength index nearly neutral at 47.26. The moving averages have been left behind by the sharp fall two weeks ago but they offer backup for the first three resistance lines are 107.50, 108.00 and 108.44.
Resistance: 107.50; 108.00; 108.44; 109.20; 109.60
Support: 106.50; 106.00; 105.60; 105.00; 104.60
USD/JPY sentiment poll
The bearish cast in the one week and bullish in the one month, weaker in the first and stronger in the second are unchanged from last week, unsurprising given the lack of movement from Monday to Friday. The switch to bearish in the one quarter outlook, 40% to 33% with a 27% neutral component is similar to last week's bullish cast in that the three directions are all in proximity to the one-third division. There is no concerted opinion on the USD/JPY out to three months.
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