- The share of commands set to buy the US Dollar edged up from 63 to 70%
- Long positions inched up from 51 to 57%
- 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: ADP Non-Farm Employment Change, Trade Balance, FOMC Meeting Minutes
US services sector activity rose at the slowest pace in six months in December, sparking concerns over the economic outlook heading into 2015. The Institute for Supply Management's non-manufacturing PMI dropped 3.1 percentage points to 56.2 in December, down from 59.3 registered in the previous month and compared to Wall Street's forecast for a 58.2 reading. The reported highlighted subdued cost pressure, due to plummeting oil prices, with the survey price index declining to 49.5 compared with November's 54.4, the first drop in input prices since September 2009. The ISM's new orders index fell to 58.9 last month from 61.4 in November. The ISM business activity/production index fell to 57.2 from 64.4, while the employment index slid to 56.0 down from 56.7 in November, a sign that the services sector was still employing at a strong pace in December. The Labor Department is due to release the December payrolls report Friday, 9 January. Analysts predict a solid gain of 240,000 new non-farm jobs, compared with 321,000 positions added in November.
A separate report from Markit Group also suggested that service activity was growing at a slower pace at the end of 2014, moving further away from June's high of 61.0. Markit Group's monthly gauge of US service activity dropped 2.9 percentage points to 53.3, the lowest level since February of last year.
USA news to dominate this week
As there will be no important updates from Japan this week, the US data will be the main factor for USD/JPY. This should be particularly visible today, with several high-impact releases on the job market, trade balance and even more importantly on the view of the FOMC on the interest rate.
USD/JPY risks falling even lower
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
As it turned out, a cluster of supports at 119 was unable to keep USD/JPY afloat, allowing the pair to descend to the 23.6% Fibo at 118. The short-term outlook is therefore bearish, with the monthly PP and up-trend at 119 supposedly acting as a ceiling. If the US Dollar manages to violate 118 as well, the 55-day SMA at 117 may become the next target. Meanwhile, additional support is provided by the monthly S1 at 116.20.
Hourly chart
Sentiment stable, but buying interest declines
Apparently, a yesterday's dip triggered some of the buy orders, pushing the portion of long positions from 51 to 57%. However, it did not weaken the support, on the contrary, the share of commands set to buy the US Dollar edged up from 63 to 70%.
A similar distribution between the bulls and shorts is reported by OANDA, where 61% of clients have long positions and the remaining 39% have short positions. SAXO Bank clients, on the other hand, seem to be even more confident in the bullishness on the US Dollar - as many as 78% of open positions are long.
Spreads (avg, pip) / Trading volume / Volatility
Most forecasts placed above 120
This week sentiment among the Dukascopy traders has slightly weakened, as now 75% of traders predict the Yen to lose value. Alongside, the average forecast for the end of the week is placed around the 120.6 level. One of the US Dollar bulls, aslamhammad, expects "USD/JPY to exchange higher, as the trend is up and the price can still go higher". He also mentions that "we have very important economic news the upcoming Friday, 9th of January 2015, the US Non-Farm Payrolls, which should be better then expected".