- The support is weakening - the percentage of buy orders fell from 77 to 63%
- 51% of positions are long and the remaining 49% are short
- Fingraphs.com: USD/JPY to trade in the 1.23-1.25 region in the next few months
- FXPro and Caxton FX: USD/JPY to aim for 135
- Upcoming events: US ISM Non-Manufacturing PMI, US Factory Orders
Cleveland Federal Reserve President Loretta Mester said that the timing of monetary policy normalization is not as important as the overall pace of rate lifts. Mester expects the US economy to expand at a 3% pace this year and the consumer price inflation rate to move gradually higher toward the Fed's 2% goal after a temporary decline caused by a fall in the oil prices. Meanwhile, Federal Reserve policy makers and economists are warning about potential turbulence as the central bank moves to hike interest rates this year for the first time in nearly a decade. The US central bank has kept its benchmark short-term interest rate at near zero since December 2008, through six years of the financial crisis, recession and slow recovery. Now, with the US enjoying robust growth and strong job creation, the Fed is getting ready to start pulling back its support. Nearly all Fed board members projected in December that the first interest rate lift would take place this year.
The Fed in December pledged to be patient, and Chairwoman Janet Yellen said it was unlikely the central bank would begin raising rates at its next two policy meetings, scheduled for 27-28 January and 17-18 March. Federal Reserve Bank of Boston President Eric Rosengren said patience in raising rates is justified given low inflation and slow wage growth.
Services sector to expand at slower rate
Institute for Supply Management is expected to show more modest growth of the tertiary sector of the US economy. Non-Manufacturing PMI is supposed to decline from November's 59.3 to 58.2 in December.
USD/JPY slips to 119
Simon Smith, Chief Economist at FXPro, is expecting the Yen to weaken next year. He does not rule out a possibility of USD/JPY surging up to 135, reasoning that the Japanese government is going to push ahead with the policy measures to prop up economic growth.
Nicholas Ebisch from Caxton FX shares a similar view, anticipating moderate appreciation of the US Dollar against the Yen over the next 12 months. He forecasts the currency pair to go up to 122 in a month, subsequently reaching a target of 125 by April. According to the analyst, by the end of 2015 the rate may well achieve the level of 135, on the condition the US macroeconomic indicators do not fall behind the expectations and the Japanese officials introduce more easing measures to promt up inflation.
Daily chart
USD/JPY returned to the rising support line at 119, which is supposed to stay intact for the medium-term bullish outlook to remain valid. However, there are also solid supports standing at 118 (23.6% Fibo) and at 117 (55-day SMA) and preventing disorderly depreciation of the greenback in case of a bearish break-out. At the same time, this may significantly delay recovery of the US Dollar, since an immediate bounce-back will be highly unlikely.
Hourly chart
Sentiment stable, but buying interest declines
Despite the increasing volatility in USD/JPY the SWFX market participants are not tilted to either side — 51% of positions are long and the remaining 49% are short. The same degree of stability but different sentiments are shown by OANDA and SAXO Bank. While the former broker reports 60% of the clients being bullish, the latter reveals a more significant skew - as many as 77% of open positions being long.
Meanwhile, the percentage of buy orders fell from 77 to 63%, meaning the support is gradually weakening.