- The number of orders to purchase the Buck increased from 58 to 64%
- Bulls account for almost three quarters (73%) of the market
- Weekly R1, Bollinger band and 200-day SMA represent resistance around 120.80
- Support is around 120.19 (20-day SMA)
- The average three-month forecast stands at 121.01
- Upcoming events today: US Crude Oil Inventories, US Consumer Credit, Japanese Core Machinery Orders and Japanese Current Account
The Greenback declined against most major currencies, amid a worse-than-anticipated Trade Balance figures. The largest loss was recorded against the Aussie, 1.15%, following with a 0.90% drop against the Swissie, 0.79% versus the Kiwi an 0.74% against the Euro. The US Dollar was most resilient against the Yen, causing the USD/JPY to fall only 0.19%.
The US trade deficit widened in August by the most in five months, as imports picked up and weaker overseas growth limited sales to customers abroad. According to Commerce Department, the gap increased 15.6% year-on-year to $48.3 billion in the reported month, following a revised $41.8 billion in July. Meanwhile, imports rose 1.2% in August to $233.4 billion from $230.6 billion in the prior month. At the same time, US exports decreased 2% to $185.1 billion in August. The widening trade gap with other nations revealed the US economy's vulnerabilities to a strong Dollar and weak demand in foreign markets, which could impose further caution on the Federal Reserve's plans to hike interest rates.
At the same time, Federal Reserve Bank of San Francisco President John Williams expects the regulator to start normalising monetary policy in 2015, despite weak job growth numbers observed earlier last week. However, he declined to comment, whether a hike will already occur in October or the Fed will wait for two more months. Williams noted that by adding 150,000 jobs every month over the medium term, the US would eventually reach the unemployment rate of 3% in the long run. He underlined that it is normal to estimate further payroll gains of less than 200,000 per month.
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."
Japanese Core Machinery Orders and Current Account
With no significant events from the US side, all focus shifts to the Japanese Core Machinery Orders and the Current Account. The Core Machinery Orders show the change in the total value of new purchase orders placed with manufacturers, excluding ships and utilities. With rather serious disappoints in the previous two months, the figures are expected to rebound in September. The second even to influence the USD/JPY exchange rate is the Current Account, which is released by the Ministry of Finance and is a net flow of current transactions, including goods, services, and interest payments into and out of Japan. A current account surplus indicates that the flow of capital into Japan exceeds the capital reduction, whereas the deficit indicates that there is a net capital outflow from these sources. The figure is forecasted to deteriorate, thus, the Yen could still weaken and allow the US currency to edge higher.
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 stuck between 120.00 and 120.80
The US Dollar began weakening against the Yen, after having reached the 120.63 potential resistance yesterday. Losses, in turn, were limited by the 20-day SMA, which prevented the USD/JPY from dropping to the 120.00 major level. Nevertheless, the Greenback risks breaching this area today and even pierce the support cluster around 119.80, while the any attempts to rebound are likely to be held by the same 120.63 mark, which is keeping the US currency from edging higher for almost six weeks now.Daily chart
Although the USD/JPY edged closer to the 200-hour SMA, it still failed to pierce it to the downside. Nevertheless, the current trend is still intact, therefore, we should see a fall towards the 120.00 level today, with a possible rebound, unless the Greenback decides to reach the support trend-line first.
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 55% of the market (54% previously). In the second case 58% of open positions are long, up from 65% yesterday.
Spreads (avg, pip) / Trading volume / Volatility
The average three-month forecast stands at 121.01
The 121.50-123.00 price interval remains the most popular choice, selected by a fifth (20%) of all voters. The second most popular choice is divided between 123.00-124.50 and 124.50-126.00 price ranges, both voted for by 12% of the survey participants. The mean forecast for January 7, however, is 121.01.
Trader votes are equally divided between bulls and bears, as the pair was rather neutral during the previous few weeks.
Khalidamassi, a member of the Dukascopy Community, believes the US Dollar could still outperform the Yen, despite the poor US NFP numbers, as the pair has strongly recovered to 120.00 after falling below 119.00 support. "The daily chart suggests more gains ahead, but in the weekly chart still moving in small range in the last weeks and there are doubts about clear direction before clearly breaking the range, next week it may close near the upper range at 121.00121.50", khalidamassi said. Daytrader21, on the other hand, expects the USD/JPY to decline by week's end. He commented on his prospect that "the USD/JPY technical pattern looks indecisive as we have been trading inside a symmetrical triangle for the most part of the past month. With the equity market under pressure I am expecting a break to the downside of this pattern. This pattern plays out as a continuation pattern in 75% of cases so it make sense to go with a downside breakout."