- The number of orders to sell the US currency increased from 59 to 69%
- 41% of all positions are now long
- The monthly S1 at 120.98 is the nearest support
- Immediate resistance is around 121.16, represented by the Bollinger band
- 51% of the survey participants expect the US Dollar to cost more than 124.50 yen in three months
- Upcoming events today: US CPI and Core CPI, Empire State Manufacturing Index
The US Dollar experienced mixed performance over Friday and the weekend, having appreciated only against commodity currencies, which in turn suffered from falling oil prices. The Greenback added 1.28%, 0.96% and 0.55% against the Aussie, the Loonie and the Kiwi, respectively, while having lost 0.52% against the Swissie, 0.47% against the Euro, 0.45% versus the Yen and 0.44% versus the Sterling. These USD crosses ignored positive US fundamentals, amid increased demand for safe haven currencies on Friday.
Americans increased their spending in November, signalling enough momentum in the world's number one economy for the Fed to hike rates as soon as this week for the first time in almost a decade. According to the Commerce Department, retail sales excluding automobiles, gasoline, building materials and food services climbed 0.6% following an unrevised 0.2% growth in October. The core retail sales correspond most closely with the consumer spending component of GDP. Overall retail sales climbed 0.2% last month as automobile sales declined, while cheaper gasoline affected receipts at service stations. Auto sales fell 0.4% in November, the biggest decrease since June, after dropping 0.3% in October. At the same time, receipts at service stations declined 0.8% following a 1.0% slide in October.
A separate report showed, US producer prices for final demand climbed 0.3% in November, the biggest increase in five months. In the twelve month through November, wholesale dropped 1.1%, compared with a 1.6% decrease in October. Fed policy makers are expected to hike interest rates at their meeting this week for the first time in nearly a decade, resting on a much-improved labour market but without strong evidence inflation is firming.
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."
Uneventful Monday
With no important economic data releases scheduled for Monday, focus shifts to the data on Tuesday, namely the US CPI and Core CPI. The Consumer Price Index is released by the US Bureau of Labor Statistics and is a measure of price movements by the comparison between the retail prices of a representative shopping basket of goods and services. The purchase power of USD is dragged down by inflation. The CPI is a key indicator to measure inflation and changes in purchasing trends. The difference between the CPI and the Core CPI is that the Core one excludes food and energy, when calculating price change of goods and services purchased by consumers..
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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 anchored around 121.00
The USD/JPY experienced serious volatility on Friday, with trade closing in at the target support at 120.98, namely the monthly S1. The demand for safe-haven Yen was higher on Friday, created by the grim situation on the oil market. Volatility is likely to remain high before the FOMC Minutes, which could even lead the Buck to a two-month low. Right now the monthly S1 at 120.98 is preventing the US Dollar from reaching the Nov low, while a strong cluster of resistances around 121.60 is to keep the pair from advancing today.Daily chart
Upon touching the down-trend, the USD/JPY experienced a rather sharp sell-off on Friday, dropping down to 120.60. The Greenback is now making attempts to recover and is likely to retest the downtrend at 121.60 by the end of the day. The trend might be preserved for another day, but a rate hike is to cause a US Dollar buying spree later this week.
Hourly chart
SWFX sentiment strongly bearish
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 slightly improved today, from 62 to 65%; while the long and short positions at SAXO Bank now take up 56% and 44% of the market, respectively.
Spreads (avg, pip) / Trading volume / Volatility
More than a half expect the rate to stay above 123 yen
The majority of forecasts appear to be centered around the 124.50 price level. However, a half of traders believe the US Dollar will cost even more after a three month period. The most popular price interval was 124.50-126.00, selected by exactly a fifth (20%) of the voters, whereas the second most popular choice is between 126.00 and 127.50 yen, chosen by 14% of the surveyed. The mean forecast for Mar 14 is 123.33.