- There are less orders to buy the Greenback, namely 37% (previously 50%)
- Bulls take up 59% of the market, compared to 62% yesterday
- Monthly PP represents resistance at 120.85
- Support is at 120.17 (20-day SMA)
- 74% of traders see the Dollar higher than 120 yen on Dec 22
- Upcoming events today: US HPI and FOMC Member Lockhart Speech
The broadly stronger US Dollar advanced against other major currencies on Monday. The largest gains of 0.90%, 0.85% and 0.83% were recorded against the Euro, the Kiwi and the Aussie, respectively. The Greenback struggled to appreciate the most versus the British Pound, adding only 0.12%.
US home resales dropped more than predicted in August, marking the first decline in four months, with higher home prices putting off buyers. Sales of previously owned homes plunged 4.8% last month to a 5.31 million seasonally adjusted annual rate, the National Association of Realtors reported. Economists, however, had projected sales to decline 1.1% to a seasonally adjusted annual rate of 5.53 million. Sales of single-family homes tumbled 5.3% in August, while sales of condominiums and co-ops dropped 1.6%. The decrease might be due to rising prices putting off potential buyers. The median home price hit $228,700 in August. That was up 4.7% from a year earlier, but left the annual rate at its lowest level since August 2014.
Sales had reached a post-recession peak in July, supported by low mortgage rates and a steady influx of new jobs. Over the past 12 months, sales have surged 6.2% and experts believe demand will remain robust well into 2016 even though interest rates are expected to climb. A slew of positive reports on the US housing market have reinforced the view that the nation's economy is gathering steam and closing in on the point when the Fed will raise interest rates to keep it from overheating.
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 Housing Price Index
The only significant data release today is the US HPI, which provides an estimate value of the housing market conditions. This particular event is considered to be a sensitive factor to the US economy, and improvements are expected. Meanwhile, there is another bank holiday in Japan 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 flat after shallow gains
The US Dollar took advantage of the bank holiday in Japan and broke out of the triangle to the upside, rather than the downside. The immediate resistance was completely ignored and Is unlikely to provide support today, but that does not imply an immediate decline. However, a correction could still take place, as the strong resistance cluster lies around the 121.00 major level. The overall outlook remains bearish, as technical indicators in the medium term suggest.Daily chart
Even though the USD/JPY broke out of the triangle on the daily chart, the larger one on the hourly chart remains intact. The 200-hour SMA slowed down the Greenback's rally yesterday, causing the pair to turn around and begin declining towards the support line of the pattern, below which the exchange rate is not expected to drop just yet.
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 54% of the market, down from 60% recorded on Monday. In the second case 60% of open positions are long, down from Monday's level of 63%.
Spreads (avg, pip) / Trading volume / Volatility
74% of traders see the Dollar higher than 120 yen on Dec 22
The average Dukascopy website visitor expects the US Dollar to cost almost 2 yen more in three months' time. Exactly a fifth of survey participants (20%) estimates that the Greenback will be worth between 121.50 and 123 yen by the mid-December. At the same time, it is worth mentioning that 63% of the forecasts are above 121.50 and 74% of the given forecasts are set above the level of 120 yen.