- The share of buy commands accounts for 56% of the market.
- 63% of traders hold short positions
- The 100-day SMA implies a ceiling around 121.76
- Immediate support is at 121.39, represented by the weekly R1
- More than two thirds of the surveyed expect the rate to stay above 120 yen in three months
- Upcoming events today: US Jobless Claims, US Preliminary Nonfarm Productivity and Unit Labor Costs, FOMC Members Lockhart, Fischer and Dudley Speeches,
Strong US fundamentals caused a surge in the US Dollar, helping it advance against most major currencies. The most significant gains were against the Kiwi (1.05%), the Euro (0.91%) and the Loonie (0.69%). However, the Buck struggled to appreciate the most against the Swissie and the Sterling, adding only 0.25% and 0.23%, respectively.
US private employers created more jobs than expected in October, suggesting steady improvement in the US labour market. Companies added 182,000 workers in the reported month, following a revised 190,000 increase in the preceding month, according to the ADP Research Institute. The median projections of economists called for a rise of 180,000. The ADP data comes ahead of the US Labor Department's more comprehensive non-farm payrolls report on Friday, which includes both public and private-sector employment. Economists predict total US employment to have increased by 180,000 jobs in October, compared to the 142,000 created in September. The unemployment rate is expected to remain unchanged at 5.1%.
A separate report showed the US trade shortfall narrowed sharply in September due to a recovery in demand for American goods from overseas. Nevertheless, the outlook for factories remains cloudy. The trade deficit contracted 15% to $40.81 billion, the smallest trade gap since February, according to the Commerce Department. Exports rose 1.6%, the biggest advance since early 2014. At the same time, imports dropped 1.8%, as Americans bought less of foreign items from cellphones to cars.
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 ADP Non-Farm Employment Change
There are no significant fundamental events from Japan today, with all focus shifted to the US ones. The Jobless Claims is due at 13:30 PM GMT and is an important event, as it is monitored by the Fed and plays a role in their monetary policy decisions; however, it tends to have a small or no reaction on the USD crosses. Therefore, the Preliminary Nonfarm Productivity and Unit Labor Costs should affect the exchange rate, with both of the events forecasted to improve. Furthermore, a number of Fed officials are scheduled to speak today, whose speeches might cause volatility in the USD pairs.
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 in tight range between 100 and 200-day SMAs
The USD/JPY appreciated slightly more than anticipated and, as a result, stabilised at the highest in two months. Even though the Greenback is supported by the weekly R1 today, a sharper fall towards the 200-day SMA at 121.08 is possible if the fundamental data disappoints. At the same time, the 100-day SMA, along with the August 28 high (121.74) are providing resistance, a break of which should then trigger a rally towards the June high at 125.87 in a longer perspective.Daily chart
The USD/JPY extended its rally and climbed higher for the third consecutive day yesterday, reaching a fresh two-month high. Even though the pair is attempting to appreciate for another day today, the Aug 28 high might cause the Buck to bounce back and return to the 200-hour SMA.
Hourly chart
SWFX sentiment deteriorating; OANDA and SAXO Bank traders remain bullish
OANDA and SAXO Bank are similar in the share of their long and short positions. The share of bulls in the market of the Canadian-based broker remain unchanged at 54%, while the percentage of long positions at SAXO Bank dropped even further: from 54 to 52%.
Spreads (avg, pip) / Trading volume / Volatility
More than 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, 70% of the three-month estimates for the currency pair are above 120 yen. The most popular price intervals turn out to be the 120.00-121.50 and the 124.50-126.00 ones, which were chosen in 19% of cases each. However, the second most popular interval, chosen by 17% of the surveyed, was 121.50-123.00. The mean forecast for Feb 05 is 121.28.
Community is almost equally divided on the Greenback
According to traders, their votes divided almost equally, however, bullish outlook has a significant advantage. Long positions take up 52.4% of the market, while short ones the remaining 47.6%.
Jignesh, a member of the Dukascopy Community, explains that the USD/JPY continues sideways without breaking any major support or resistance, since the strong sell-off accompanied by the equity market one. "Last week, the pair tested the upper resistance zone and was unable to break 121.40. While below this level, expecting a continued sell-off this week," he mentioned. On the opposite side of the barricade, csan86, said that "in the middle of October the bullish pressure increased but the bulls were not strong enough to break through the 121.40 level." Csan86 believes the prices can find buyers at 12.40 and it can be the beginning of a new bullish breakout attempt.