- The share of buy orders declined, from 63 to 53%
- The long-short ratio remains relatively stable
- 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: US Building Permits, Housing Starts
Despite falling slightly, US homebuilders' confidence stayed close to the highest level in nine years in January, adding to signs the residential real estate sector is set to grow this year. According to the National Association of Home Builders, the Housing Market index dropped to 57, compared with a revised 58 in December, with a reading above the 50-mark threshold indicating more builders perceive market conditions as favourable than poor. The index has been above 50 since June 2014. An improving job market and near historically low levels of mortgage rates are likely to continue boosting demand for homes in 2015. A separate report last week showed consumer confidence advanced in January to the highest level in 11 years, raising odds more households will be looking for new homes to purchase. The University of Michigan preliminary consumer sentiment index rose this month to 98.2, the highest since January 2004.
The gauge of current single-family home sales component remained flat at 62, while the indicator of single-family sales expectations for the next six months dropped to 60 from 64, and the index of prospective buyer traffic fell to 44 from 46. A Commerce Department report today is expected to show housing starts rose to an annualized 1.04 million pace in December, up from 1.03 million in the previous month.
US real estate market
The market has already made a correction based on the BoJ Monetary Policy Statement release at the very beginning of the day. The next risk events for USD/JPY are the US Building Permits and Housing starts, both of which are expected to increase by 10,000 compared to the prior readings.
USD/JPY faces fierce resistance at 119
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
Though USD/JPY managed to settle above 118 yesterday, at the moment the currency pair is under strong selling pressure after a test of the monthly pivot point at 119. On the hourly chart the price broke out of the rising wedge to the downside. Nevertheless, the support represented by the weekly PP and 23.6% Fibo may well prevent further depreciation of the US Dollar. This would mean the rate is ready to overcome supply at 119 and re-challenge late December highs around 121.
Hourly chart
Bulls retain majority
Despite the increased volatility of USD/JPY, the long-short ratio remains relatively stable. At the moment of writing 63% of open positions are long (62% yesterday). On the other hand, the share of buy orders declined, from 63 to 53%.
The distribution between the bulls and bears at OANDA apprears to be more or less the same, being that 60% of open positions are reported to be long. A different view of the market is offered by SAXO Bank, where the distribution between the longs and shorts is perfectly even.
Spreads (avg, pip) / Trading volume / Volatility
USD/JPY to rise to 124.5/123.0 by the end of April
Concerning the weekly forecasts, nearly 29% of the FX Community members participating in the survey expect USD/JPY to stay between 118.3 and 116.4 by the end of Friday. Pazner is motivating his bullish forecast by expecting the ECB programme to be positive for the pair. Alternatively, WallStreet6 sees a possibility of "a more serious further retracement downwards", as "USD/JPY has been trading much lower than during the peak".