- The share of purchase orders increased from 50 to 67%
- There are now 70% of long positions
- The Bollinger band, 55 and 200-day SMA represent resistance around 120.80
- Support is around 120.41 (weekly R1)
- The average three-month forecast stands at 120.39
- Upcoming events today: US Markit Manufacturing PMI, US New Home Sales
The US Dollar appreciated against most major peers on Thursday, with exception against the Kiwi and the Loonie. The Euro lost 2.08% against the Greenback, after the ECB's dovish remarks, while the USD/CHF appreciated 1.42%. Losses, however, were recorded against the Kiwi (1.29%) and the Canadian Dollar (0.39%). The Buck also remained relatively unchanged versus the Sterling and the Aussie, adding 0.15% and 0.02%, respectively.
The number of Americans seeking unemployment benefits rose less than expected last week, but the figure remained at a historically low level. Initial jobless claims rose by 3,000 to a seasonally adjusted 259,000 in the week ended October 17, the Labor Department reported. Economists, however, had expected 265,000 new claims. At the same time claims for the October 10 week were revised up by 1,000 to 256,000, just above the 42-year low hit in July. The four-week moving average of claims, which evens out weekly volatility, declined by 2,000 to 263,250 last week, the lowest average level since December 1973. Meanwhile, the number of people continuing to receive unemployment benefits increased by 6,000 to 2.17 million in the week ended October 10.
Separately, the National Association of Realtors reported that sales of previously owned homes surged more than expected in September, putting the housing market back on track for its strongest year since 2007. Home resales increased 4.7% last month to a seasonally adjusted rate of 5.55 million units, compared with the market consensus of 5.38 million. The September rise came on heels of an unexpectedly weak August, when existing home sales rose to a revised 5.3 million.
In response to the latest Bank of Japan meeting, Stuart Allsop, head of financial market strategy at BMI Research, said that no action from the central bank was expected and that they are likely to "refrain from doing any more stimulus this year". However, he noted that "the risks have increased".
Concerning the GDP growth, the analyst doubts that it will "get above 1% anytime in the foreseeable future". The reasons for this are manifold. First, there is "a huge headwind in terms of demographics". Additionally, there is a decline in growth of China coupled with global economic slowdown. However, the main negative factor provided by Allsop is a "very unstable production structure". He explains that the real interest rate is negative, which is "sending contradictory signals to the real economy", and this in turn leads to a low chance of "a productivity boom
As for the Japanese Yen, Allsop is bullish on the currency. In his opinion there are two main contributing factors. The first one is that "investors lose faith in the willingness of the BoJ to act. At the same Allsop adds that the Yen has proven recently its status as a global safe have, and this is beneficial for the value of the currency being that "global financial markets are looking quite shaky", which is negative for the risk sentiment. At the same time, the analyst mentioned that USD/JPY "may fall quite significantly in the coming months", and if this is the case, "this would raise the prospects of intervention from the BoJ."
US Markit Manufacturing PMI
The only significant event from the US to influence the USD/JPY today is the Markit Manufacturing PMI. The PMI is released by the Markit Economics and captures business conditions in the manufacturing sector. As the manufacturing sector dominates a large part of total GDP, the manufacturing PMI is an important indicator of business conditions and the overall economic condition in the United States. According to the forecast, the PMI is expected to worsen, therefore, somewhat weighing on the US currency.
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 fall back to 120.00
The US Dollar exceeded expectations and rallied towards the resistance line at 120.63 on Thursday. Even though technical indicators are not giving any particular sense of direction today, the USD/JPY is still likely to undergo a correction. The eight-week consolidation trend remains intact and, thus, the Greenback should bounce back, making its way back to 120.00. Moreover, a strong resistance cluster is located just above the spot price, represented by the Bollinger band, 55 and 200-day SMAs, as well as the resistance line, for piercing of which the pair lacks momentum.Daily chart
The USD/JPY failed to confirm the bearish trend, as the resistance trend-line was broken, allowing the Greenback to reach a four-week high. The Buck still has space for a rally towards 121.74 (Aug 28 high), but the consolidation trend is still expected to persist.
Hourly chart
Bulls preserve majority
OANDA and SAXO Bank also report minor preponderance of bullish market participants. In the first case the longs take up 52% of the market (56% previously). In the second case 52% of open positions are long, down from 57% on Thursday.
Spreads (avg, pip) / Trading volume / Volatility
The average three-month forecast stands at 120.39
The 121.50-123.00 price interval remains the most popular choice, selected by a slightly less than a fifth (17%) of all voters. The second most popular choices are the 124.50-126.00 and the 114.00-115.50 price ranges, both voted for by 15% of the survey participants. Meanwhile, the mean forecast for January 23 is 120.39, while 43% of the surveyed still assume the Dollar could cost less than 120 yen in three months.
In course of the week forecasts, sentiment among Dukascopy traders became rather weak for this currency pair, as 75% of trades expect bearish development. The average expectation is located around 118.4.
Being among only 25% of traders, Jignesh, suggests the equity market correlation, which was strong in the previous month, has dissipated. "However, last week we saw some strong signs of reversal on the dailies, a doji followed by a strong bullish engulfing candle may be setting up the week for strength," he commented. Jignesh also adds that "the pair has had the clearest, strongest, and longest trends across the majors, and buyers are waiting on standby to get involved in this uptrend." Meanwhile, with the other three quarters of the traders, on the bearish side, aslamhammad is expecting price to consolidate back around 118 yen. "But if price closes above 120Yen, price could continue rise higher. As in the monthly+weekly chart price is consolidating to downside. So, sentiment is bearish at the current moment," aslamhammad explained.