- The portion of orders to acquire the US Dollar increased from 57 to 71%.
- Bearish traders' sentiment remains at 59%
- The weekly PP at 120.29 remains the nearest resistance
- Immediate support is around 119.80, represented by the weekly S1 and weekly S2
- 52% of the survey participants expect the US Dollar to cost less than 123.00 yen in three months
- Upcoming events today: US Markit and ISM Manufacturing PMIs, US Construction Spending
During the New Year's holiday the US Dollar appreciated against most major peers, with exception against the Yen and the Aussie. The Greenback gained 1.16% versus the Swissie, while also adding only 0.75% against the Euro and 0.55% versus the Sterling. Furthermore, a 0.19% gain was registered against the Kiwi, while the Buck remained completely unchanged against the Loonie and relatively unchanged against the Aussie (-0.02%). At the same time, the USD/JPY edged 0.12% lower.
The number of Americans applying for unemployment benefits increased sharply in the week ended December 26, with some of the gains might be attributed to temporary holiday factors. Initial jobless claims surged by 20,000 to a seasonally adjusted 287,000, according to the Labor Department, marking the largest one-week rise since February and the highest reading for jobless claims since the week ended July 4. Economists, however, had predicted a smaller increase in new claims to 270,000. Unemployment claims data can be volatile from week to week, particularly around holidays due to seasonal adjustments. The four-week moving average, which smooths out weekly volatility, climbed by 4,500 in the reported week to 277,000. Furthermore, the number of continuing jobless claims increased by 3,000 to 2,198,000 in the week ended December 19. Nevertheless, claims remained near historically low levels, an indication of a strong job market.
Cleveland Fed President Loretta Mester predicts the US economy to grow at a slightly faster pace in 2016 than last year. Mester forecasts the world's number one economy to expand at a 2.5% to 2.75% pace in 2016. At the same time, Fed policy makers project that they will further raise the target range by a full percentage point over the course of the year, to 1.25%-1.5%.
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".
Raig Erlam, senior currency analyst with OANDA, considers that more stimulus from the BOJ is "inevitable", but it is the timing that is yet uncertain. Erlam expects the central bank to hold off this week, but he thinks that "at some point towards the end of the year we may start to see the message being conveyed through to the market that stimulus is coming".
Concerning the GDP growth, the BMI Research 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 ISM Manufacturing PMI the only possible event to have further impact today
With the Yen receiving a massive boost from Chinese fundamental data and geopolitical tensions in the Middle East, it is hard to imagine the US fundamentals will be able to turn the tables around in terms of USD/JPY performance. Nonetheless, later today the Institute of Supply Management is to release the US Manufacturing PMI. The Manufacturing PMI is the level of diffusion index, based on purchasing managers surveyed in the given industry. It is a leading indicator of economic health, but the data is still expected to be below 50.0 points, therefore, indicating a contraction in the manufacturing sector. Nevertheless, a number of secondary US data is also due today, and despite most of the data releases expected to worsen, figures might still surprise to the upside and help the Greenback recover from intraday losses.Raig Erlam, senior currency analyst at OANDA, reckons that this week's FOMC statement will be "the Fed's last opportunity to convince the market that rates are still on course to be raise this year". In case they exclude this message from the statement, then "they are not going to raise rates this year and we are probably looking more towards the middle of the next year".
USD/JPY begins the year with a 140-pip slump
Pair's Outlook Last week the USD/JPY currency pair retested the 120.00 major level and closed slightly higher—at 120.23. On Monday the USD weakened against the JPY significantly, the demand for which rose after Chinese data disappointed. As a result, the given pair fell to a fresh two-month low, and keeps edging lower towards the Oct 2015 low. The second cluster's lowest level, namely the monthly S1 at 118.93, has a chance to cause a rebound in the American session; however, the pair is still likely end the day in the red zone, as no impetus today will be strong enough to negate all losses.Daily chart
The USD/JPY extended its consolidation period at the end of last week, slumping only earlier today. Although the up-trend on the daily chart remains intact, the one we see on the hourly chart was broken. The pair now has nothing providing support, but a corrective rally is still likely to kick in sooner or later.
Hourly chart
Bears dominate the market
OANDA and SAXO Bank are similar in the share of their long and short positions. The portion of bulls in the market of the Canadian-based broker remains unchanged today, with 67% of their traders holding long positions; meanwhile, the long and short positions at SAXO Bank now take up 59% and 41% of the market, respectively.
Spreads (avg, pip) / Trading volume / Volatility
More than a half expect the exchange rate to fall under 123 yen
According to the survey conducted between Dec 04 and Jan 04, the US Dollar is expected to cost 120.77 yen in three months. However, according to the most popular price interval, the US Dollar is likely to cost 115.50 yen or less after three months; this price interval was selected by 33% of the voters. The second choice was higher, as 19% of the voters chose the 123.00-124.50 interval. Meanwhile, the majority of 52% believe that the Greenback is to fall below 123.00 yen after a three month period.