- The portion of buy orders dropped to 41%
- 71% of all traders are holding short positions
- The monthly R2 implies a ceiling at 123.50
- Immediate support is at 123.05, represented by the Bollinger band
- Almost three quarters of the surveyed expect the rate to stay above 120 yen in three months
- Upcoming events today: US Labor Market Conditions Index, Japanese Current Account US Import Prices, FOMC Member Evans Speech,
The Greenback climbed more than 1.00% higher against most of other major currencies on Friday and over the weekend. The better-than-expected US Non-Farm Payrolls data pushed the AUD/USD down 1.42%, followed by a 1.36% decline of NZD/USD and a 1.34% of EUR/USD. The US Dollar had the most trouble appreciating versus the Swiss Franc, as it gained 1.01% against it.
US job growth accelerated at a much faster pace than expected in October following two consecutive months of tepid gains, setting the stage for the December rate hike. Nonfarm payrolls surged 271,000 last month, the biggest increase since December 2014, according to the Labor Department. The number was well above economists expectations of 182,000 new jobs. Payrolls data for August and September were revised to show 12,000 more jobs added than previously reported. The strong rebound in payroll creation in October lifted the three-month average to 187,000. The US unemployment rate declined to 5.0%, the lowest level in more than seven years.
The employment report joined October's robust services sector and auto sales data in reinforcing views that economic growth will regain steam in the fourth quarter after slowing down sharply to a 1.5% annual pace in the July-September period. The services sector added 241,000 jobs in October, with large gains in retail, health and leisure. Fed policy makers will see one more employment report released in December, about two weeks prior to their final meeting this year. However, given the strong rebound in payrolls in October, few rate setters should doubt that the economy's readiness for a rate hike.
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."
A day to take a breath after US Payrolls data
Monday is a rather quiet day in terms of fundamentals events to influence the USD/JPY this week. The only possible event is the US Labor Market Conditions Index, which shows the change in the level of a composite index based on 19 labor market indicators. However, this index usually has little or no impact on the exchange rate, as its indicators were used in previous releases already. Until Tuesday's US Import Prices nothing is likely to influence the USD crosses significantly. Furthermore, early Tuesday morning the Japanese Current Account is due, which, according to the forecast, is likely to weaken the Yen slightly more.
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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 settles down at new 11-week high
The USD/JPY exceeded all expectations and climbed above the 123.00 major level on Friday and even higher over the weekend. On Monday the Greenback is likely to remain flat, as the Bollinger band is supporting the pair from below, while the monthly R2 is preventing the Buck from edging higher. Technical studies, on the other hand, are still giving bullish signals, implying that the US Dollar might prolong its rally for at least another day. The lack of market movers, however, suggests otherwise, with a small correction due.Daily chart
As the US Dollar jumped above the 123.00 mark, the distance between the spot price and the up-trend support line increased. The Buck is now unlikely to give up on its bullish momentum, unless another significant market mover pushes the USD/JPY down through the support.
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 returned to its previous level of 54% (previously 55%), while the positions at SAXO Bank are equally divided between the long and the short ones.
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, 73% of the three-month estimates for the currency pair are above 120 yen. The most popular price interval turns out to be the 124.50-126.00 one, which was chosen in 26% of cases. However, the second most popular interval, chosen by 19% of the surveyed, was 120.00-121.50. The mean forecast for Feb 09 is 121.81.