- The share of orders to buy the Buck dropped from 68 to 67%
- Today 72% of traders are holding short positions
- The up-trend, the 20-day SMA and the weekly PP are the nearest support around 122.90
- Immediate resistance is at 123.22, represented by the weekly R1
- 60% of the survey participants expect the US Dollar to cost more than 123 yen in three months
- Upcoming events today: US ISM Manufacturing PMI, US Markit Manufacturing PMI, US Construction Spending, FOMC Member Evans Speech, Japanese Monetary Base
The US Dollar managed to appreciate only versus the Euro (0.29%) and the Japanese Yen (0.25%) on Monday, while declining against other major peers. The Buck declined the most against commodity currencies, with exception versus the Loonie. The USD/CAD dropped only 0.07%, while the AUD/USD and NZD/USD went 0.47% and 0.70% higher, respectively. The Buck also remained relatively unchanged versus the Swissie and the Sterling, losing only 0.12% against both.
US pending home sales increased less than expected in October, adding to signs that the housing market recovery was losing steam following a strong start to the year. According to the National Association of Realtors, its seasonally adjusted pending home sales index climbed 0.2% to 107.7. Strong job gains as well as low mortgage rates boosted sales for much of the year. However, rising home values and limited inventories have restrained further growth in the closing months of 2015. A limited selection of homes on the market has pushed up sales prices 5.8% from a year ago to a median of $219,600. A separate report from the realtor group revealed that finalized contracts to buy a home dropped to 5.36 million on an annualized basis in October, after recording one of the best readings of the recovery in the preceding month.
Looking ahead, the NAR predicts more improvement in home sales, although the extent of the gains will depend on inventory growth. Existing home sales are likely to increase to 5.3 million by the end of the next year to mark their highest level in a decade, the NAR expects.
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 and Markit Manufacturing PMIs
The Yen strengthened early today on Japanese fundamentals, with focus now shifted to the US ones. The most important one is the Manufacturing Purchasing Managers Index (PMI), which is released by the Markit Economics and the Institute for Supply Management. It captures business conditions in the manufacturing sector, and 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. The Markit Manufacturing PMI is expected to remain relatively unchanged, while the ISM one to improve. A number of secondary data is also due after the PMIs are released and could influence the US currency as well.
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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 risks breaching up-trend again
There were no surprises in the USD/JPY's performance, with the pair appreciating and returning above the up-trend. Even though the US Dollar weakened against the Yen in the early hours and is now continuously testing the immediate support cluster, from a technical point of view the US Dollar should extend its recovery today. The up-trend is also bolstered by the major level of 123.00, the 20-day SMA and the weekly PP, while technical indicators are giving bullish signals. The weekly R1, however, could provide sufficient supply and prevent the pair from edging up if fundamental data disappoints.Daily chart
The USD/JPY managed to stabilise above the 200-hour SMA yesterday, but failed to retain its bullish momentum today, dropping even lower than yesterday. Unless the 200-hour SMA now provides sufficient support, the recovery towards the Nov high might not occur at all.
Hourly chart
SWFX sentiment strongly bearish
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 dropped from 61 to 55%, while 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 rate to stay above 123 yen
Bullish forecasts for USD/JPY appear to be the more common than bearish ones. According to the survey conducted in November, 60% of the three-month estimates for the currency pair are above 123 yen. The most popular price interval turns out to be the 124.50-126.00 one, which was chosen in almost a quarter (21%) of cases. However, the second most popular intervals, each chosen by 11% of the surveyed, were 126.00-127.50 and 127.50-129.00. The mean forecast for Mar 01 is now 124.23.