- 64% of pending orders are set to buy the Dollar
- SWFX market participants remain undecided
- The price should rise up to 122 after completing correction
- Good chance of stabilisation near the rising support line at 120.50
- The average three-month forecast stands at 120.39
- Upcoming events today: US (Core) Durable Goods Orders (Sep), CB Consumer Confidence (Oct)
The Greenback was among the main losers on Monday because of the disappointing news on the real estate market. The largest drop was recorded against the New Zealand Dollar that appreciated 0.48% relative to its US counterpart, followed by a 0.45% decline in AUD/USD.
Newly built home sales, which make up 7.8% of the housing market, dropped to near a one-year low last month following two consecutive months of gains. According to the Commerce Department, sales plunged 11.5% to a seasonally adjusted annual rate of 468,000 units, the lowest level since November 2014. Moreover, August's sales pace was revised down to 529,000 units from the previously reported 552,000 units.
The moderation in new home sales is likely to be short-lived as other housing reports painted a positive picture of the sector. September data on existing home sales, homebuilder confidence and housing starts were fairly strong. Sales of existing homes surged 4.7% in September to the second-highest pace in eight years, as low interest rates and pent-up demand supported the housing recovery. US home building recovered in September after two consecutive months of declines, the Commerce Department said last week, largely due to a sharp rise in construction of apartments and other multifamily housing. Moreover, a gauge of home-builder sentiment jumped to a 10-year high in October, a sign of momentum for a key sector of the economy.
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."
Prepare for turbulence at 12:30 pm GMT
We are expecting high levels of activity between 12:30 and 2:00 pm GMT because of several high impact releases. According to the estimates, the aggregate value of orders placed with manufacturers for long life expectancy goods, excluding volatile items, will show no change. Additionally, consumer confidence is set to weaken to 102.5 in October from 103 in the previous month.
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 gains upward momentum
Although USD/JPY is currently negating recent gains, the outlook on the currency pair is bullish, as it is undergoing a correction. After consolidation, which should not extend far beyond the 55-day SMA, the price should rise up to 122, where it will come in contact with a tough resistance level represented by the 100-day SMA. Above this the potential targets will be the monthly R2 at 122.66 and the long-term rising trend-line at 123. The upside pressure will be alleviated once the rate dives under the monthly PP at 120.Daily chart
In the hourly chart USD/JPY has a good chance of stabilising near the rising support line at 120.50 after yesterday's decline. The trend-line can be drawn through the Oct 15 and Oct 22 lows, and if it is breached, the focus will shift to the 200-hour SMA at 120.
Hourly chart
Bulls and bears are equal in strength
Sentiment is neutral at OANDA and SAXO Bank as well. Only slightly more than a half of the Canadian-based broker clients (53%) are holding long positions, up from 50% yesterday. Exactly the same distribution between the bulls and bears is reported by SAXO Bank.
Spreads (avg, pip) / Trading volume / Volatility
The average three-month forecast stands at 120.39
The 121.50-123.00 price interval remains the most popular choice, selected by a slightly less than a fifth (17%) of all voters. The second most popular choices are the 124.50-126.00 and the 114.00-115.50 price ranges, both voted for by 15% of the survey participants. Meanwhile, the mean forecast for January 23 is 120.39, while 43% of the surveyed still assume the Dollar could cost less than 120 yen in three months.