- The gap between the buy and sell orders contracted, from 22 to 14
- 64% of open positions are currently long
- 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: Japanese Services Producer Price Index
The US flash data on activity in the manufacturing data showed a significant deterioration in January, as the corresponding PMI reading fell to the lowest level in twelve months. The preliminary manufacturing PMI dropped to 53.7 in January, compared with 53.9 in the preceding month. The rate of output growth rose slightly, whereas new business growth declined to the lowest level in a year, according to Markit. The flash estimate is based on around 85%-90% of total PMI survey responses each month. Separately, sales of previously owned homes rose in December, a solid end to a weak year for the nation's housing market. Existing-home sales climbed 2.4% in December from a month earlier to a seasonally adjusted annual rate of 5.04 million, the National Association of Realtors said. Additionally, sales for November were revised downwards to 4.92 million from an earlier estimate of 4.93 million, and compared with the October's rate of 5.25 million. For all of 2014, existing home sales declined 3.1%, the first annual fall in four years.
The housing market has struggled to keep momentum since stagnating in the second half of 2013 after a run-up in mortgage rates. However, mortgage rates decline, an easing of lending standards and an ongoing strengthening of the US economy over the last few months has boosted optimism that sales could improve this year.
Volatility to rise already on Tuesday
While there are no events scheduled for today that may have a noticeable impact on USD/JPY, Tuesday is going to be different. The second part of Jan 27 will be dominated by the US data, such as Durable Goods Orders, Consumer Confidence, New Home Sales, and many more. Most of the figures are expected to improve.
USD/JPY opens beneath 118
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
The resistance at 119 proved to be impenetrable last week, forcing USD/JPY to fluctuate between the monthly PP and 23.6% Fibo most of the time. Nevertheless, the medium-term risks are skewed to the upside, being that the key supports are intact. As long as the currency pair is trading above 116, the bulls will be in a better position, though the US Dollar still needs to climb over 119 in order to re-challenge December highs at 121 and the 2014 high at 122.
Hourly chart
SMFX market dominated by bulls
The sentiment with respect to the greenback remains strongly bullish, as 64% of open positions are currently long. The gap between the buy and sell orders contracted, from 22 to 14 percentage points in favour of the former, suggesting the demand is not as strong as before the weekend.
The bulls at OANDA now take an even bigger portion of the market - 63 instead of 60% recorded on Jan 23. The sentiment at SAXO Bank, however, is perfectly neutral, as the amounts of long and short positions are equal.