- The number of purchase orders declined from 72 to 57%
- Bullish traders' sentiment returned to its Friday's level of 61%
- 20-day SMA and weekly PP represent resistance around 120.20
- Support is around 119.40 (weekly S1 and the Bollinger band)
- 65% of traders see the Dollar higher than 120 yen on Dec 28
- Upcoming events today: US CB Consumer Confidence, US Goods Trade Balance, Japanese Retail Sales
Commodity currencies suffered losses, allowing the US Dollar to appreciate 0.89%, 0.53% and 0.45% versus the Kiwi, the Aussie and the Loonie, respectively. However, the Greenback declined 0.59% against the Swiss Franc, 0.56% against the Yen and 0.40% against the Euro, while remaining relatively unchanged against the Sterling, adding only 0.03%.
Household spending in the US rose at a healthy rate in August, while personal growth slowed after a jump in July. According to the Commerce Department, consumer spending increased 0.4% on a monthly basis in the reported month after an upwardly revised 0.4% rise in July, beating the estimate of a 0.3% gain. In both months the spending increases were led by strong gains in spending on durable goods including cars. Meanwhile, personal income was up 0.3% in August, helped by another solid increase in wages and salaries, however the reading missed a 0.4% growth forecast. The result followed a 0.5% income gain in July, which was the best reading in eight months. The solid spending and income data reinforced the signs of strength in America's domestic economy that could lead to the Fed tightening interest rates despite the slowdown in emerging markets.
Meanwhile, President of the Federal Reserve Bank of Chicago Charles Evans, while speaking at Marquette University in Milwaukee, noted that the best time for a lift-off of interest rates from near-zero level can be the middle of next year. He added that low rates should help the economy to sustain growth and normalise inflation. Evans is the FOMC voting member in 2015.
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 CB Consumer Confidence and Japanese Retail Sales
The most significant event from the US side is the CB Consumer Confidence. Even though no improvements are expected, the overall outcome for the USD/JPY could still be positive, as the Japanese Retail Sales, which are due at 23:50 PM GMT, are also unlikely to show stronger figures. Nevertheless, the fundamental data might also be ignored, amid risk-aversion sentiment in the air, which keeps boosting the safe-haven 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 keeps consolidating for the fifth week
The Greenback declined against the Japanese Yen on Monday, amid a risk-aversion sentiment dominating the market. However, the losses exceeded expectations, as the pair pierced the support trend-line and closed trade under the 120.00 major level. With the risk-aversion in place and boosted demand for safe-haven currencies, such as the Yen, the given pair is likely to suffer more weakness today. Immediate support is represented by the weekly S1 and the Bollinger band around 119.30, but a fall under 119.00 is not out of the question if the fundamentals disappoint.Daily chart
On the hourly chart, the USD/JPY currency pair is seen suffering losses since the second half of last Friday. However, with the pair approaching the 119.00 major level, the bullish momentum could still be regained, as this area limited the pair's downside volatility for the last two weeks.
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 64% of the market (60% previously). In the second case 58% of open positions are long, up from Monday's level of 54%.
Spreads (avg, pip) / Trading volume / Volatility
65% of traders see the Dollar higher than 120 yen on Dec 29
The average Dukascopy website visitor expects the US Dollar to cost almost 2 yen more in three months' time. Exactly a fifth of survey participants (20%) 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 58% of the forecasts are above 121.50 and 65% of the given forecasts are set above the level of 120 yen.
This week overall sentiment remained negative, as slightly more than 45% of traders expect the pair to close below the 120.00 level in the end of the present working week, while the average expectation stays just below this level.
Nuonrg, one of the participants of the weekly Community forecasts, believes that "after forming a bearish flag, still the long uptrend is in place as a bull flag." Nuonrg suggests that in order to prove the upside, the pair has to break the 121.00. "Last candles seem choppy range, but today seems firm up. Therefore, I am in favour of a long-run," the trader added. Joining the bears this week, rokasltu, another member of the Dukascopy Community, expects the USD/JPY to fall deeper down. "I think even NFP data will not influence rate much as it resides near mark which satisfies both buyers and sellers," rokasltu commented on the matter.