- 61% of all commands are to buy the Buck
- 34% of traders hold long positions
- The 55-day SMA implies a ceiling around 120.36
- Immediate support is around 120.05, represented by the 20-day SMA, monthly PP and weekly S1
- More than two thirds of the surveyed expect the rate to stay above 120 yen in three months
- Upcoming events today: US ISM Manufacturing PMI and Markit Manufacturing PMI, US Construction Spending, FOMC Member Williams Speech
The US Dollar sustained losses against most major peers on Friday and over the weekend, amid worse-than-expected US fundamental data results. The largest declines were registered against the Kiwi and the Aussie, losing 1.24% and 0.91%, respectively. The Greenback suffered significantly also versus the Sterling (-0.78%) and the Loonie (-0.70%), whereas the USD/CHF experienced the smallest fall, namely only 0.16%.
US labour costs rose in the third quarter as the jobs market continued to tighten. The Employment Cost Index climbed 0.6% following a 0.2% increase in the second quarter that was the smallest gain on records, according to the Labor Department. Companies are trying to attract or retain skilled workers as the world's number one economy continues to grow and the unemployment rate hovers near levels consistent with full employment. A sustained pickup in wage growth would help bring inflation closer to the Fed's goal as policy makers consider hiking interest rates. Yet, labour costs remained well below levels that would push consumer prices closer to the Fed's 2% goal. In the 12 months through September, labour costs rose 2.0%, still below the 3% threshold that economists say is necessary to bring inflation closer to the target.
Meanwhile, the price index of personal consumption expenditure excluding food and energy, ticked up 0.1% in September, missing market's expectations for a 0.2% gain. The sluggish monthly increase left the so-called core deflator, the Fed's preferred measure of inflation, just 1.3% higher than a year ago.
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 Manufacturing PMI
The US Manufacturing PMI is due today, which is released by both the Markit Economics and Institute for Supply Management. The PMI captures business conditions in the manufacturing sector; ss 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. A slight change to the downside is expected, but the US ISM one is forecasted to reach the 50.00 mark, reaching the edge between contraction and expansion; therefore, the US currency is expected to experience some pressure. Furthermore, other fundamental data releases scheduled for Monday are also forecasted to worsen, with the only exception being the ISM Prices Paid (which are still likely remain below the 50.00 mark, despite a possible improvement today).
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 sets off with quiet trade
Although the Greenback remained strong through most of Friday, the excessive pressure from the weak fundamental data pushed the USD/JPY towards 120.60. Despite bullish technical indicators, the US Dollar still risks falling deeper towards the 120.00 major level, as there has still been no rather gradual sell-off after the 55-day SMA pierced the 200-day one. Moreover, the 55-day SMA is now the immediate resistance, just on top of the opening price, while a cluster around 120.00 should limit intraday downside volatility.Daily chart
The pair edged lower on Friday, thus, extinguishing all hopes of the trend-line getting confirmed. Furthermore, the 200-hour SMA barely managed to hold the losses at the end of last week, and completely gave in today. However, the pair might find support near the 120.00 major level, refusing to drop beyond last week's low.
Hourly chart
SWFX sentiment recovering; 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 edged up from 56 to 59%, while the percentage of long positions at SAXO Bank increased today: from 54 to 58%.
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, 69% of the three-month estimates for the currency pair are above 120 yen. The most popular price interval turns out to be 124.50-126.00, which was chosen in 22% of cases. However, the second most popular interval, chosen by 17% of the surveyed, was 121.50-123.00. The mean forecast for Feb 02 is 121.22.