- Buy and sell orders returned to a perfect equilibrium
- Exactly three quarters (75%) of traders are now long the Greenback
- The monthly PP represents resistance at 119.93
- Support is around 119.80 (20-day SMA)
- The average three-month forecast stands at 120.38
- Upcoming events today: US Jobless Claims, US HPI, US Existing Home Sales, US CB Leading Index
The US Dollar kept appreciating against most major peers, due to rumours about the Fed raising interest rates in December. The Loonie suffered from falling oil prices and the BoC stating that the Canadian economy is growing slower than expected. Other commodity currencies, such as the Aussie and the Kiwi, also suffered from the decreased prices of oil; both of the currencies lost 0.70% against the Greenback. However, the Yen and the Euro suffered the least, allowing the Buck to advance only 0.08% and 0.06%, respectively.
Japan's trade deficit narrowed in September as petroleum imports continued to fall due to weaker global oil prices, while exports climbed at a soft pace. The trade shortfall shrank to 114.5 billion yen last month from 569.7 billion yen in August, the Ministry of Finance reported. Trade balance of the world's third biggest economy remained in deficit for the sixth straight month in September. Exports ticked up 0.6% in twelve months through September, bolstered by a 6.9% increase in electrical machinery and a 3.7% rise in transport equipment. At the same time manufactured goods exports plummeted 8.2% in September. The weak Japanese Yen helped increase the value of exports, but volume declined 3.9%, the third consecutive month recording an annual decline. Exports to China dropped 3.5% from the year before, to 1.11 trillion yen. Meanwhile, exports to the US, Japan's biggest overseas market, surged 10.4% to 1.28 trillion yen. At the same time, imports dropped 11%, to 6.53 trillion yen.
China's slowdown and sluggish domestic demand weighed on factory output and the broader economy, although the BoJ saw the effects of China's slowdown as limited, sticking to its rosy growth outlook. Still, weak indicators will keep the central bank under pressure to ease policy again to hit its 2% inflation target next year.
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 Existing Home Sales and Jobless Claims
From the US the Jobless Claims data is due at 12:30 PM GMT, although it provides information on the employment sector, it tends to have a mild reaction on the USD crosses. Therefore, the US Existing Home Sales is the event to pay the most attention to from the US. It shows the annualized number of residential buildings that were sold during the previous month, except for new construction. The forecast stands at 5.37 million (up from 5.31 million). Improvements are expected, but an increase in the Jobless Claims could still force the USD/JPY down, as well as any worse-than-expected Existing Home Sales figure. No significant events concerning the Japanese economy are scheduled for today.
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 makes a U-turn after testing 120.00
The US Dollar inched seven pips higher against the Yen, remaining within the borders of the immediate resistance cluster, namely between the 20-day SMA and the monthly PP. The pair is expected to bounce back from the 120.00 level today and weaken towards the weekly PP at 119.23. A breach of the immediate support is likely to cause a slump towards the 118.50 support line, which is bolstered by the monthly S1 in October. Technical studies also point to a possibility of this area being tested soon, as signs are distinctly bearish in the weekly timeframe.Daily chart
The USD/JPY remained relatively unchanged over the day, climbing slightly higher, but returning under the resistance trend-line. The bearish trend remains intact, and a decline today is to confirm it. However, the 200-hour SMA lies close by (around 119.50), which could hold the losses and keep the pair somewhat elevated.
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 56% of the market (58% previously). In the second case 57% of open positions are long, up from 56% on Wednesday.
Spreads (avg, pip) / Trading volume / Volatility
The average three-month forecast stands at 120.38
The 121.50-123.00 price interval remains the most popular choice, selected by a slightly less than a fifth (18%) of all voters. The second most popular choice is the 124.50-126.00 price range, voted for by 15% of the survey participants. Meanwhile, the mean forecast for January 22 is 120.38, while 42% of the surveyed still assume the Dollar could cost less than 120 yen in three months.
In course of the week forecasts, sentiment among Dukascopy traders became rather weak for this currency pair, as 75% of trades expect bearish development. The average expectation is located around 118.4.
Being among only 25% of traders, Jignesh, suggests the equity market correlation, which was strong in the previous month, has dissipated. "However, last week we saw some strong signs of reversal on the dailies, a doji followed by a strong bullish engulfing candle may be setting up the week for strength," he commented. Jignesh also adds that "the pair has had the clearest, strongest, and longest trends across the majors, and buyers are waiting on standby to get involved in this uptrend." Meanwhile, with the other three quarters of the traders, on the bearish side, aslamhammad is expecting price to consolidate back around 118 yen. "But if price closes above 120Yen, price could continue rise higher. As in the monthly+weekly chart price is consolidating to downside. So, sentiment is bearish at the current moment," aslamhammad explained.