- Compared to the previous report the share of buy orders fell from 66 to 59%
- There has been a marginal increase in the percentage of long positions
- 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
- Banking Holiday in the US
Meanwhile, consumer prices in the world's number one economy dropped in December from a month earlier, posting the sharpest decline since April 2013. The Labor Department said the cost of living in the US fell by 0.4% month-over-month in December, following the 0.3% drop in the preceding months. On an annual basis, consumer prices cooled to 0.8% growth in the final month of 2014, considerably lower than the 1.3% increase in November, posting the weakest rate of growth since October 2009. Core inflation, which strips out volatile food and energy prices, was flat on month in December and rose 1.6% on an annual basis.
As long as inflation remains contained and the US Dollar strong, the deteriorating outlook could lead to speculation that the Fed could delay its first rate hike by couple of months. Federal Reserve Bank of Chicago President Charles Evans said the US might not reach the Fed's target inflation rate until 2018 and he does not support the idea of raising interest rates until 2016. "We ought to provide an appropriate amount of accommodation to hit the inflation goal," he said. Investors are examining the inflation data as the Fed gets ready to start normalizing monetary policy. Lacklustre wage growth at the end of 2014 coupled with cooling inflation is raising odds of a delay of the first interest rate hike.
US Banking Holiday
Because of the Banking Holiday in the United States today and a low concentration of high-importance events tomorrow, there is a decreased probability of the major pairs making decisive moves until Jan 21, when the Census Bureau is expected to report relative stability in the amount of houses started and building permits granted, 1.04M and 1.06M, respectively.
USD/JPY pushed away from 115.50
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 promt up inflation.
Daily chart
Though the US Dollar strengthened on Friday, the currency does not seem ready to push through the supply at 118, represented by the weekly pivot point and 55-day SMA. If there emerges a decline as a result of an encounter with this resistance, it should be limited by the 38.2% retracement at of the Oct-Dec rally at 115.48. There is also a cluster of supports at 116.48/115.84, mainly created by the weekly and monthly S1 levels.
Hourly chart
SWFX bulls remain in majority
Since Friday there has been a marginal increase in the percentage of long positions — from 60 to 61%. At the same time, there are now less orders to purchase the greenback, compared to the previous report their share fell from 66 to 59%, suggesting the demand for the Dollar may weaken.
The percentages of long positions at OANDA and SAXO Bank are moving in a different from the SWFX market direction. In the first case the share of bulls contracted from 63 to 58%. In the second case the share of bulls contracted from 53 to 49%. Overall this shows the optimism regarding the bullishness of the US Dollar keeps fading.