- The ratio of buy and sell orders is equal to one
- There are more bullish traders today (71%)
- The 20-day SMA and the monthly PP represent resistance around 119.90
- Support is around 119.10 (the weekly PP and the Bollinger band)
- The average three-month forecast stands at 120.47
- Upcoming events today: US Building Permits, US Housing Starts, FOMC Members Dudley and Powell Speeches, Fed Chair Yellen Speech, Japanese Trade Balance
The US Dollar managed to post minor gains against most major peers, with exception against the British Pound. The USD/CAD advanced 0.81%, amid the Loonie suffering from the federal election results. However, the Greenback remained relatively unchanged against the Japanese Yen, adding only 0.05%, while also declining 0.17% against a broadly stronger Sterling.
As the Fed is moving closely to ensure its dual mandate of stable prices and maximum employment is met, it should raise interest rates in the near future despite strong headwinds from overseas, San Francisco Fed President John Williams said. Responding to the recent string of disappointing US economic readings, investors cut their bets the Fed will hike interest rates this year. On the contrary, Williams argued that the central bank should raise rates to slow down economic growth before it becomes unsustainable. The world's number one economy will probably expand about 2% or 2.25% next year, Williams predicted, fast enough to push the jobless rate "well below" 5% and begin to push inflation back up toward the Fed's 2% target. Yet, the pace of rate increases should be gradual, leaving monetary policy accommodative for coming years.
Forecasts prepared for the September 16-17 Federal Open Market Committee gathering showed that 13 of 17 policy makers saw a rate hike warranted this year. Williams, who is a voter of the Fed's policy-setting panel, declined to specify when he personally would like see the US central bank start normalizing policy. However, Williams refused to rule out October meeting 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".
Concerning the GDP growth, the 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 Building Permits
The data release worth paying attention to is the US Building Permits, which is released by the US Census Bureau, shows the number of permits for new construction projects at the Department of Commerce. It implies the movement of corporate investments (US economic development) and tends to cause some volatility to the USD. According to the forecast, no changes are expected in the Building Permits, but any shift is likely to influence the USD/JPY accordingly. The Japanese Trade Balance, on the other hand, is expected to improve, but could be ignored by the market; therefore, it is not a high-impact event.
Marcel Thieliant, economist from Capital Economics, forecasts USD/JPY to be at 130.00 by the end of the second quarter. The analyst commented that he expects the BoJ to step up the pace of easing at the end of this month. "This is obviously not what other economists expect, if that happens, we will probably see a strong drop in the Yen against the Dollar and against other major currencies," Thieliant said.
Steve Lucas, technical analyst at 3CANALYSIS, gives their perspectives on the USD/JPY currency pair. "We have persistently been bullish of USD/JPY, but in the very short-term we think there will be a pullback", he said. Steve explained their view by mentioning that since the pair posted the 12.5 year high in June, last week put in a bearish reversal candle, which is a negative signal. "We also think that the deception out there is that the Fed is going to be a little easier on raising interest rates and people are going to be a bit cautious and a bit sensible and take the money off the table", the analyst added.
USD/JPY muted around 119.50, awaits a trigger
Despite having tested the immediate support, the USD/JPY still managed to edge higher yesterday, somewhat strengthened by the improvement in the NAHB Housing Market Index. Nevertheless, technical studies retain their bearish signals in the daily timeframe, insisting the Buck is to sustain losses. The immediate resistance and support clusters remain unchanged, meaning that a significant fundamental event is to drive the exchange rate today. The base case scenario is a decline not lower than the 118.50 area, a ten-month support, now also bolstered by the monthly and weekly S1s.Daily chart
The US Dollar managed to climb higher for another day, in spite of edging closer towards the 200-hour SMA, which could have caused the USD/JPY to bounce back. The pair has already pierced the given SMA, but momentum can still change, as the Greenback approaches the resistance trend-line.
Hourly chart
Bulls preserve majority
OANDA and SAXO Bank also report minor preponderance of bullish market participants. In the first case the longs take up 60% of the market (63% previously). In the second case 68% of open positions are long, down from 69% on Monday.
Spreads (avg, pip) / Trading volume / Volatility
The average three-month forecast stands at 120.47
The 121.50-123.00 price interval remains the most popular choice, selected by a slightly less than a fifth (19%) of all voters. The second most popular choice is the 114.00-115.50 price range, voted for by 14% of the survey participants. Meanwhile, the mean forecast for January 20 is 120.47, while 43% of the surveyed still assume the Dollar could cost less than 120 yen in three months.