- Sell orders take up 51% of the market
- The gap between the bulls and the bears widened from 32 to 42% points, with bears in the majority
- The 200-day SMA implies a ceiling around 121.05
- Immediate support is at 120.70, represented by the weekly PP
- More than two thirds of the surveyed expect the rate to stay above 120 yen in three months
- Upcoming events today: US Factory Orders, Japanese Consumer Confidence, US ADP Non-Farm Employment Change, US Trade Balance
The US Dollar posted solid gains against the Kiwi, gaining 0.48%, while rest of the USD crosses remained relatively unchanged. USD/JPY, USD/CAD and the Cable edged higher 0.12%, 0.11% and 0.08%, respectively; whereas the Greenback lost 0.09% against both the Euro and the Swiss Franc, with the largest fall recorded versus the Aussie, namely 0.12%.
Activity in the US manufacturing sector rose at its slowest pace in more than two years in October, underscoring factories struggle with a sluggish global economy and strong US Dollar. According to the Institute for Supply Management, manufacturing PMI dropped to 50.1 last month, down from 50.2 in September, falling for a fourth consecutive months. The strong Greenback has hurt exports and caused job cuts at plants across the country. The number of manufacturing jobs decreased by 8% in October compared with a month earlier, reaching the lowest level since August 2009. Also, manufacturers reported that prices of raw materials declined for the 12th successive month. However, the index for new orders climbed to 52.9, up from 50.1, adding to hopes that the slowdown may end in the coming months. Overall manufacturing activity has grown for 34 months in a row, but the pace of growth has deteriorated for four straight months.
In contrast, Markit's final survey showed manufacturing activity across the US rose in October and hit the highest level in seven months. Markit's manufacturing PMI came in at 54.1 in the reported month, compared with 53.1 in September.
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 Factory Orders
Due to there being a bank holiday in Japan, the only even worth paying attention to is the US Factory Orders. It is released by the US Census Bureau and is a measure of the total orders of durable and non-durable goods such as shipments (sales), inventories and orders at the manufacturing level which can offer insight into inflation and growth in the manufacturing sector. The Factory Orders value is expected to decline at a narrower rate, compared to the previous release. Although the figure is to remain negative, a reading closer to 0% is still a sign of improvement in this case.
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 stuck between 20 and 200-day SMAs
The 55-day SMA failed to hold the USD/JPY from a corrective rally yesterday. Nevertheless, the ten-week consolidation trend remains intact, implying that the pair could climb higher towards the 100-day SMA in the medium term. However, the immediate resistance, namely the 200-day SMA, might trigger a Greenback sell-off earlier, causing a slump towards 120.00 major level. A strong impetus is required for the USD to pierce the cluster around this area, which the employment data or Fed Chair's speech might cause this week.Daily chart
The USD/JPY entered a possible down-trend, but with the 200-hour SMA periodically causing a rebound. A rally towards the 120.90 level would confirm the trend-line, unless the pair stabilises under the 200-hour SMA, which then will bolster the resistance area near the down-trend.
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 edged down from 59 to 58%, while the percentage of long positions at SAXO Bank remains unchanged today: at 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 03 is 121.22.