- The difference between the buy and sell orders widened from 28 to 36 percentage points
- The distribution between the longs and the shorts is stable — 57 to 43%
- Fingraphs.com: USD/JPY to trade in the 1.23-1.25 region in the next few months
- FXPro and Caxton FX: USD/JPY to aim for 135
- Upcoming events: US Non-Farm Employment Change, Unemployment Rate, Average Hourly Earnings
Minutes of the latest FOMC meeting were scarce on new information, showing once again that the Fed opted out to remain patient in beginning to normalize the monetary policy. Thus, the Fed is unlikely to raise interest rates until April. The Fed reiterated that policy decisions depend on the economy's progress toward full employment and 2% inflation, the central bank's dual mandate. Although cheaper energy costs and stronger Greenback are seen to keep inflation below the Fed's inflation goal, minutes revealed normalization might start even when core inflation is still short of target.
Nevertheless, the Fed board members would have to be "reasonably confident" that inflation would return to 2%. Minutes also showed that the Fed saw cheaper energy costs as a positive driver for the US economy and the labour market. New quarterly forecasts showed that while most Fed policy makers expected a hike of the federal funds rate in 2015, they also lowered their expectations for the pace of lifts that would follow. The median forecast called for the rate to climb to 1.125% by the end of the year, down from the 1.375% predicted in September.
Event of the month is today: US NFP
The US labour market condition is the main topic for today, but the data is not expected to be reassuring - the Non-Farm Payrolls are forecasted to drop, while the growth of the average hourly earnings is likely to decelerate.
USD/JPY recovers above 119
Simon Smith, Chief Economist at FXPro, is expecting the Yen to weaken next year. He does not rule out a possibility of USD/JPY surging up to 135, reasoning that the Japanese government is going to push ahead with the policy measures to prop up economic growth.
Nicholas Ebisch from Caxton FX shares a similar view, anticipating moderate appreciation of the US Dollar against the Yen over the next 12 months. He forecasts the currency pair to go up to 122 in a month, subsequently reaching a target of 125 by April. According to the analyst, by the end of 2015 the rate may well achieve the level of 135, on the condition the US macroeconomic indicators do not fall behind the expectations and the Japanese officials introduce more easing measures to prompt up inflation.
Daily chart
Thought USD/JPY has seemingly broken the up-trend to the downside, the pair gained a foothold above 119 once again. As a result, the US Dollar received yet another opportunity to challenge the resistances at 121 and 121. If the rate fails to surpass the 2014 high, it should be well-supported at 118.00/117.50, where the 23.6% Fibo coincides with the 55-day SMA. Alternatively in case the bulls succeed—the 2007 high at 124 will become the next target.
Hourly chart
Demand for USD grows
At the SWFX market the distribution between the longs and the shorts is more or less stable — 57 to 43%, respectively. The difference between the positions is more pronounced at OANDA (60% long) and even more salient at SAXO Bank (76% long).
At the same time, the difference between the buy and sell orders widened, from 28 to 36 percentage points in favour of the former, implying the demand for the US currency may be increasing.
Spreads (avg, pip) / Trading volume / Volatility
Most forecasts placed above 120
This week sentiment among the Dukascopy traders has slightly weakened, as now 75% of traders predict the Yen to lose value. Alongside, the average forecast for the end of the week is placed around the 120.6 level. One of the US Dollar bulls, aslamhammad, expects "USD/JPY to exchange higher, as the trend is up and the price can still go higher". He also mentions that "we have very important economic news the upcoming Friday, 9th of January 2015, the US Non- Farm Payrolls, which should be better then expected".