- The portion of orders to acquire the USD gained seven percentage points to 56%.
- Bears keep taking up 71% of the market
- The 200-day SMA implies a ceiling around 121.07
- 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 ADP Non-Farm Employment Change, US Trade Balance, US ISM Non-Manufacturing PMI, Fed Chair Yellen Testimony, US Crude Oil Inventories
The US Dollar's performance was quite similar to the Sterling's, as it appreciated against most major peers. The largest gain was recorded against the Kiwi (1.24%), followed by a 0.46% one against the Euro and 0.40% versus the Swiss Franc. Losses of 0.55% and 0.26% were detected versus the Aussie and the Loonie, respectively, while the Buck also remained relatively unchanged against the Pound, losing 0.02%.
New orders for US factory goods declined for a second consecutive month in September as the manufacturing sector continues to suffer from a strong US Dollar and dramatic spending cuts by energy companies. According to the Commerce Department, factory orders declined 1% in the reported month following a 2.1% decrease in August. A category that serves as a proxy for business investment spending slipped 0.1%. The September result was driven by a steep 36% fall in the volatile category of commercial aircraft. Yet, the weakness appeared to be widespread across other categories including primary metals, machinery and computers. US manufacturers have been suffering this year as a strong Greenback makes American products less competitive overseas. The Dollar has gained 16.8% versus the currencies of the US main trading partners since June 2014, which has undermined export growth and weighed on the profits of multinationals.
The US economic growth slowed to a moderate 1.5% rate in the July-September quarter following a 3.9% expansion in the second quarter. Many economists are predicting GDP to accelerate to around 2.5% in the current October-December period, as strength in consumer spending offsets ongoing weakness in manufacturing.
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 ADP Non-Farm Employment Change
Japanese Monetary Base weak figures pushed the USD/JPY higher in the early trade today, but further data could negate those gains. From the US side, the most important event is the ADP Non-Farm Employment Change, released by the Automatic Data Processing, Inc. It is a measure of the change in the number of employed people in the US. It also provides some insight to the Payrolls data on Friday, therefore, could cause substantial volatility. The Employment Change is expected to worsen, but the US Trade Balance to improve. The Fed's Chair is also scheduled to speak today, with information concerning the interest rate hike expected to be provided.
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 keeps testing the 200-day SMA
Although the USD/JPY managed to climb above the 121.00 major level, the 200-day SMA limited the Greenback's gains yesterday. According to short-term indicators, the Buck is poised for another surge, despite having retreated to the opening price (pushed back by the weekly R1) today. The 200-day SMA is still acting as a rather strong resistance, and along with a number of fundamentals, might cause a decline towards the 120.00 cluster. A fresh two-month high is yet to be established, with the next supply target around 121.75, namely the 100-day SMA.Daily chart
The 200-hour SMA provided sufficient support to cause the USD/JPY to breach the possible trend-line and stabilise above the 121.00 mark. However, the pair still lacks momentum to reach the previous week's high of 121.48 or the August 28 one at 121.74, both of which might trigger a decline.
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 58 to 54%, while the percentage of long positions at SAXO Bank drops similar to OANDA's: from 58 to 54%.
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, 72% of the three-month estimates for the currency pair are above 120 yen. The most popular price intervals turn out to be the 121.50-123.00 and the 124.50-126.00 ones, which were chosen in 20% of cases each. However, the second most popular interval, chosen by 16% of the surveyed, was 120.00-121.50. The mean forecast for Feb 04 is 121.51.
Community is almost equally divided on the Greenback
According to traders, their votes divided almost equally, however, bullish outlook has a significant advantage. Long positions take up 52.4% of the market, while short ones the remaining 47.6%.
Jignesh, a member of the Dukascopy Community, explains that the USD/JPY continues sideways without breaking any major support or resistance, since the strong sell-off accompanied by the equity market one. "Last week, the pair tested the upper resistance zone and was unable to break 121.40. While below this level, expecting a continued sell-off this week," he mentioned. On the opposite side of the barricade, csan86, said that "in the middle of October the bullish pressure increased but the bulls were not strong enough to break through the 121.40 level." Csan86 believes the prices can find buyers at 12.40 and it can be the beginning of a new bullish breakout attempt.