- Buy orders surged from 51 to 74%
- The share of bulls in the market went up from 57 to 61%
- 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: Japan's Core Machinery Orders, PPI; US Retail Sales, Import Prices, Business Inventories
Although Japan's current account surplus shrank in November, it remained close to the highest level in three months reached in October. It was also the fifth consecutive month, when the nation posted current account surplus as a weaker Japanese Yen boosted income form foreign investment. Japan's seasonally adjusted surplus came in at 914.5 billion yen, the Ministry of Finance said, compared with a 947 billion yen deficit in the preceding month. Exports rose 5.1% in November compared with a month earlier, while imports climbed by 2.4% over the same period, resulting in the goods trade balance in a narrower deficit of 665.6 billion yen, compared with the previous deficit of 816.9 billion yen. On an unadjusted basis, surplus was 433.0 billion yen in November, narrowing from October's 833.4 billion yen.
Trade deficits over the past two and half years have weighed on the current account, bringing it occasionally into deficit. However, improving exports in November helped cut the monthly trade deficit by 42%. A weaker Yen, meanwhile, has helped boost the value of returns on securities and direct investments overseas held by the Japan's residents. The primary income account, which indicates overseas investment returns, was 1.28 trillion yen in November, rising 44.4% on year and the biggest surplus reading on record for the month.
High impact event at 13:30 GMT: US Retail Sales
The second part of Wednesday is expected to signal a slowdown in the volume growth of the US retail sales. Whether the figure falls in line with the estimate of 0.1% for the core reading or surprises to the either side, this is likely to have a pronounced impact on the US Dollar, being the most important event of the day.
USD/JPY pushes through 118
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
Despite the odds against, the Yen keeps gaining ground against the US Dollar. This may well result in violation of the dense demand area at 118 (23.6% Fibo, 55-day SMA) that is likely to entail a further decline, possibly down to the 38.2% Fibonacci retracement at 115.50. If the latter support also gets breached, a new line in the sand will be drawn at 113.50, where the 50% Fibo coincides with the 100-day simple moving average.
Hourly chart
Cheaper Dollar attracts bulls
A decreasing price of the buck is attracting more buyers — the share of bulls in the market has gone up from 57 to 61% within the last 24 hours. Growing demand is also evidenced by a surge in the buy orders from 51 to 74%. The long-short ratio reported by OANDA also became more skewed in favour of the bulls, who now consitute 63% of the market.
Meanwhile, the bullish sentiment among the SAXO Bank clients with respect to USD/JPY has notably weakened. While previously the share of longs fluctuated above 70%, now it is only at 57%.
Spreads (avg, pip) / Trading volume / Volatility
Overwhelming majority sees USD/JPY above 117
At the same time, most (57%) of the FX Community members expect the greenback to outperform the Yen during the week. For instance, il_Ciano believes the divergence between the US and Japan is going to play the main role in pushing the pair upwards. On the other hand, Jignesh is bearish on USD/JPY, seeing downside risks emanating from poor performance of the equities.