- There are now relatively less buy orders (44%) than sell ones (56%)
- Share of longs slid from 62 to 58%
- Falling resistance line is at 120.50
- Demand is at 120 (200-hour SMA)
- 16% of traders expect the Greenback to cost either between 121.50 and 123.00 yen or between 124.50 and 126.00 yen in three months
- Upcoming events: US CPI (Aug), Core CPI (Aug), Japan Trade Balance (Aug)
Yesterday, the US Dollar was among the currencies that gained the most. While AUD/USD and GBP/USD gave up 0.52 and 0.54%, USD/CHF rose as much as 0.61%. Only the Loonie and the Kiwi turned out to be more bullish than the Greenback among the majors.
US consumer spending rose in August at a healthy pace, suggesting a strong domestic demand that could prompt Fed policy makers to raise interest rates on Thursday. According to the Commerce Department, sales at retail stores and restaurants climbed a seasonally adjusted 0.2% in the reported month, following a revised 0.7% growth in July. At the same time, core retail sales inched up 0.1%. Measured on an annual basis, retail turnover increased 2.2% in August. Consumer spending accounts for around 70% of economic activity in the US and represents a key gauge of the economy's health. Retail sales represent a major piece of overall consumer spending. Robust spending in the spring helped the world's number one economy expand at an annual rate of 3.7% in the second quarter. A separate report from the Commerce Department showed that broad-based consumer spending increased 0.3% in July, roughly the same pace as June.
Fed officials are looking for encouraging signs as they weigh whether to raise interest rates this week for the first time in almost a decade. Higher interest rates would suggest that the central bank considers the US economy is on a solid growth path.
Craig Erlam, Senior Market Analyst at OANDA, commenting on the prospects of the Fed raising interest rates this year, said that there is no real difference between the Fed raising rates either in June or in September. In his opinion September just seems more likely, because it gives the Fed more time to prepare for the hike. Craig also does not see the immediate necessity for a rate hike in September, but thinks that "there is just a number of policymakers who want to test the water with the first hike, see how the markets react, how economy holds up."
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".
Concerning the GDP growth, the 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".
All eyes on US CPI
An important piece of the US data will come out at 12:30 pm GMT. According to the consensus forecast headline inflation will drop to zero after the previous reading of 0.1% recorded for July. Lately this release has been more important than most of the high impact events. At the very end of the day the Ministry of Finance of Japan is expected to show contraction of the trade deficit from 0.37 to 0.35 trillion yen.
Steve Lucas, technical analyst at 3CANALYSIS, gives his perspective on the USD/JPY currency pair:"we have persistently been bullish of USD/JPY, but in the very short-term we think there will be a pullback". Steve explains the forecast by mentioning that after the pair posted the 12.5-year high in June, there is now a negative signal in the form of a bearish reversal candle. "We also think that the deception out there is that the Fed is going to be a little easier on raising interest rates and people are going to be a bit cautious and a bit sensible and take the money off the table", the analyst added.
USD/JPY capped at 121
We will hold a bearish view with respect to USD/JPY as long as the monthly pivot point and 200-day SMA that stand next to 121 remain intact. In the coming weeks the pair is inclined to fall down to 118.50, where in turn we expect strong demand, considering how this level proved itself in April and August. Beyond this point the US Dollar will likely aim for this year's lowest level at 115.85, which was observed in January.Daily chart
In the hourly chart USD/JPY did in fact confirm the falling resistance line at 120.50, but was unable to pass through demand at 120, where we have the 200-hour SMA. Eventually the long-term moving average should give in, and this will allow the currency pair to launch yet another attack on the rising support line at 119.60.
Hourly chart
Bears crowd out bulls
The same percentage of long positions (58%) is observed at SAXO Bank, although the dynamics are different. Yesterday 56% of the broker's traders were bulls. At OANDA the share of longs fell from 59 to 55%.
Spreads (avg, pip) / Trading volume / Volatility
16% of traders expect the Greenback to cost either between 121.50 and 123.00 yen or between 124.50 and 126.00 yen in three months
According to the survey conducted between August 11 and September 11, 49% of the participants expect the US Dollar to cost more than 123 yen in three months. However, the mean forecast for December 11 is 122.67. Meanwhile, the highest number of poll participants, namely 16%, suggest that the US currency will cost either between 121.50 and 123.00 yen or between 124.50 and 126.00 yen in three months, while the second largest choice, selected by 14% of the surveyed, implies that the US Dollar will cost between 126.00 and 127.50 yen.
According to the latest survey, a majority (54.5%) of the Dukascopy Community members prefer to be short the Dollar against the Yen this week.
However, one of the poll participants, aslamhammad, reckons that "technically, price is trying to recover back to the highs", and expects the exchange rate to increase by the end of the week. On the other hand, csan86 notes that "there is a huge double bottom on weekly and daily chart, so there is a high possibility for a breakout from the triangle pattern on the downside", in which case he expects "more bearish movement at least to the 116.150 area".