- Share of buy orders declined from 64 to 61%
- Percentage of long positions fell from 49 to 46%
- Bearish channel implies a ceiling at 120.50
- Immediate support is at 120.10, represented by the 200-hour SMA
- Almost two thirds of the surveyed expect the rate to stay above 120 yen in three months
- Upcoming events today: FOMC statement, US goods trade balance (Sep), crude oil inventories
Although yesterday's event did not warrant an increase in demand for the US Dollar, the Greenback was the second most bullish currency after the Yen. The US Dollar became 0.88 and 0.79% more expensive relative to the Canadian and Australian dollars respectively, while USD/JPY gave up 0.53%.
US orders for big-tickets goods such as heavy machinery or airplanes dropped in September for the second consecutive month. According to the Commerce Department, orders for long-lasting products declined 1.2% last month following a revised 3.0% decrease in August. At the same time non-defence capital goods orders excluding aircraft, a proxy for business investment, slid 0.3% after a 1.6% drop in August. American manufacturers have been struggling due to soaring US Dollar, which makes US goods more expensive overseas. Moreover, cheap oil has also sapped demand for heavy-duty goods used by domestic drillers and energy firms. Durable goods orders have been down in four of the past six months, pointing to problems facing manufacturers as they struggle with economic weakness in top export markets like China.
Separately, the Conference Board reported that consumer confidence dropped to 97.6 this month from a revised 102.6 in September. The board's Present Situation Index declined to 112.1 in October, from 120.3 in September. The share of consumers expecting more jobs in the months ahead fell to 14.5% from 14.9%, while the share of those expecting fewer jobs climbed by 1% to 16.9%.
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."
FOMC statement to dominate trading
Today's releases and surprises before 6 pm GMT are unlikely to have any material impact on the markets. All the attention is to be directed at the wording in the FOMC statement. The key question remains whether to expect a rate hike this year or only somewhere in 2016. According to the CME's FedWatch tool that is based on the implied by the 30-day fed funds futures rate, there is 65% chance that the rate is going to stay unchanged until the end of this year.
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 is near term bearish
Neither the 55-day nor the 200-day moving average was able to prevent an extension of the decline, meaning the US Dollar is likely to weaken even more in the next few days. The floor is now seen around the mark of 120 yen, where the monthly PP joins forces with the weekly S1 and 20-day SMA. However, should the bears overpower the bulls, the price will be inclined to dive considerably deeper, down to 118.50, namely the monthly S1.Daily chart
The hourly chart suggests that USD/JPY has recently entered the bearish channel after failing to extend the rally beyond 121.50. The pattern implies a ceiling at 120.50, while the lower boundary of the pattern is at 119.90. However, we should note that the immediate support is higher, at 120.10, and is represented by the 200-hour SMA.
Hourly chart
SWFX sentiment keeps deteriorating; OANDA and SAXO Bank traders are bullish
OANDA and SAXO Bank open position reports show the opposite tendency. As the price of the US Dollar became more attractive yesterday, the share of bulls in the market of the Canadian-based broker rose from 53 to 58%, while the percengate of long positions at SAXO Bank demostrated an even larger increase: from 53 to 60%.
Spreads (avg, pip) / Trading volume / Volatility
Almost two thirds expect the rate to stay above 120 yen
Bullish forecasts for USD/JPY appear to be the more common than bearish ones. According to the survey conducted in October, 65% of the three-month estimates for the currency pair are above 120 yen. The most popular price interval turns out to be 123.00-121.50, which was chosen in 21% of cases. However, the second most popular interval, chosen by 16% of the surveyed, was 115.50-114.00. The mean forecast for Jan 28 is 120.77.
Community is bearish on the Greenback
The latest survey among the Dukascopy Community members reveals strong negative attitude towards the US Dollar: 69% of the respondents expect the currency to underperform the Yen this week, while only 31% are bullish.
RacerX is one of the few bulls, who forecasts "USD/JPY to continue upwards limited by the resistance just after 125.20 area which is around the high for the year to date." At the same time, he expects that "the pair will ping pong up and down inside of the 118.00 and the 125.00 range for the remainder of the year." Another contrarian, csan86, claims that USD/JPY "shows strong bullish signs", as "the price broke out successfully from the medium-term rectangle pattern".