- Purchase orders are now in the majority with 56%
- Bulls remain unchanged, taking up 59% of the market
- 20-day SMA represents resistance at 120.12
- Support is at 120.01 (weekly PP)
- 69% of traders see the Dollar higher than 120 yen on Dec 23
- Upcoming events today: US Markit Manufacturing PMI, US Crude Oil Inventories, FOMC Member Lockhart Speech
The Buck managed to appreciate against most major peers, with exception against the Yen. The US Dollar gained 1.01%, 0.78% and 0.65% the most versus the Sterling, the Aussie and the Kiwi, respectively. The Loonie allowed the Greenback to advance only 0.17%, while the USD/JPY dropped 0.35%.
The US economy is enjoying "sustained, stable" growth, Treasury Secretary Jack Lew said, noting that workers need to see a more robust wage growth for the economy to continue to flourish. The world's number one economy posted gross domestic product of 3.7% in the second quarter, the strongest rate of growth since mid-2014. Job-creation has also been steady, pushing the nation's unemployment rate down to 5.1%, the lowest level in seven years.
US home prices rose more than expected in July amid ongoing improvement in the job market and as buyers competed for a tight property supply. Prices increased 0.6% on a seasonally adjusted basis from June, the Federal Housing Finance Agency said. This compared with the median forecast of a 0.4% rise and followed an unrevised 0.2% gain in June, which was the smallest gain in nine months. The HPI surged 5.8% in July when compared to the same period last year, which was faster than any 12-month period since April of last year, and up from a 5.5% year-over-year gain in June. The falling unemployment rate helped create a bigger pool of buyers, who found few homes on the market to choose from. Listings nationwide plunged 4.7% in July from a year earlier, the National Association of Realtors said. Price increases will encourage more homeowners to sell as they gain enough equity to trade 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."
US Markit Manufacturing PMI
With the final holiday in Japan, shifting all focus to the US Markit Manufacturing PMI. However, now changes in the PMI are expected, but a broadly stronger Dollar should still outperform the Yen.
Marcel Thieliant, economist from Capital Economics, forecasts USD/JPY to be at 130.00 by the end of the second quarter. The analyst commented that he expects the BoJ to step up the pace of easing at the end of this month. "This is obviously not what other economists expect, if that happens, we will probably see a strong drop in the Yen against the Dollar and against other major currencies," Thieliant said.
Steve Lucas, technical analyst at 3CANALYSIS, gives their perspectives 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", he said. Steve explained their view by mentioning that since the pair posted the 12.5 year high in June, last week put in a bearish reversal candle, which is a negative signal. "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 attempts to preserve the bullish trend
Greenback almost managed to negate Monday's gains yesterday, but stabilised between the 20-day SMA and the weekly PP. Even though the Yen strengthened due to weak Chinese Manufacturing PMI early today, but the US Dollar is still expected to outperform the Japanese currency today. The pair remains supported not only by the weekly PP, but also the trend-line, which should cause a rebound, with ultimate gains limited by the tough resistance around the 121.00 major level.Daily chart
The USD/JPY keeps trying to break through the support trend-line every day since Friday, as the 200-hour SMA is pushing the pair lower and limiting the upside volatility. A break through the SMA should trigger further rally and help the pair pierce the resistance trend-line, unless a sell-off occurs, which would lead the Greenback back under 119.00.
Hourly chart
Bulls preserve majority
OANDA and SAXO Bank also report minor preponderance of bullish market participants. In the first case the longs take up 58% of the market, up from 54% recorded yesterday. In the second case 59% of open positions are long, down from Tuesday's level of 60%.
Spreads (avg, pip) / Trading volume / Volatility
69% of traders see the Dollar higher than 120 yen on Dec 23
The average Dukascopy website visitor expects the US Dollar to cost almost 2 yen more in three months' time. Slightly less than a fifth of survey participants (18%) estimates that the Greenback will be worth between 121.50 and 123 yen by the mid-December. At the same time, it is worth mentioning that 59% of the forecasts are above 121.50 and 69% of the given forecasts are set above the level of 120 yen.
The survey among Dukascopy Community members shows that traders are still undecided over the pair's future perspectives, votes are divided almost equally.
On the one side of the barricade we have khalidamassi, a member of the Dukascopy Community, who believes the USD/JPY moved in the last three weeks in range between 119 and 121. "This range may continue next week, any break of upper range may send the pair towards 122, but any clear break below 199 may send the pair sharply lower towards 116 level", he commented. On the other side, massimoscales suggests that the given pair is depending a lot on any release from China, which will be the main driver.