- The buy orders lost the advantage over the sell ones
- The share of longs stands at 59%
- 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: Japanese Tertiary Industry Activity; US PPI, Unemployment Claims, Philly Fed Manufacturing Index
Japan's core machinery orders increased less than expected in November amid falling orders in the manufacturing sector, as companies remain cautious about capital expenditure due to concerns over domestic demand as well as renewed worries about global growth. Orders for new machinery were up 1.3% on month in November following a 6.4% decline in the preceding month, according to Japan's Cabinet Office. Analysts, however, had expected a 4.8% advance. Orders from manufacturers plunged 7% in November, compared with a 5.5% slide in the previous month, Cabinet Office reported. Compared with a year earlier, core orders dived 14.6%. Machinery orders are predicted to have declined 0.3% in the fourth quarter of 2014.
Japan's policy makers believe that consumer spending, corporate profits, capital expenditure and exports will help support economic growth this year. Nevertheless, signs of a faltering global economy, persistently falling oil prices and a unexpected decline in copper prices underscore the challenges to this scenario. Economists predict that GDP growth in the final quarter of 2014 have turned positive, after slowing down in the two previous three-month periods immediately after the tax hike took place in April 2014. Japan's Prime Minister Shinzo Abe approved a $29 billion stimulus package last month in an attempt to stoke consumer spending and business activity.
Japan's services sector
Today's data from Japan is going to focus on the tertiary sector of the economy, which is expected to expand by 0.3% in November after a 0.2% contraction reported for October. However, the main events for USD/JPY are going to take place at the start of the New York trading session, namely the US PPI and Unemloyment Claims at 13:30 GMT.
USD/JPY slips below 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
USD/JPY settled beneath the 23.6% Fibo and 55-day SMA yesterday, suggesting the US Dollar is likely to weaken more before the bulls regain control of the market. The immediate support is at 116.45/20, represented by the weekly S2 and monthly S1, followed by the 38.2% retracement of the Oct-Nov up-move. The latter is expected to prevent further depreciation of the greenback and force the pair to commence a recovery.
Hourly chart
Demand for Dollar weakens
At the moment the share of longs stands at 59%, 2 percentage points lower than yesterday. Exactly the same distribution between the long and short positions is shown by SAXO Bank. OANDA clients, on the other hand, are slightly more optimistic regarding the bullish potential of the Dollar - 62% of them are currently holding long positions.
As for the orders, the buy ones lost the advantage over the sell ones, as the share of the former plummeted from 74 to 53%, signifying a large decrease in demand for the greenback.
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.