- The portion of purchase orders now takes up 55% of the market
- 72% of all positions are long
- 20-day SMA represents resistance around 120.15
- Support is around 119.75 (Bollinger band, monthly and weekly PPs)
- The average three-month forecast stands at 121.83
- Upcoming events today: US Jobless Claims, FOMC Meeting Meetings
The US Dollar experienced mixed performance on Wednesday, as it appreciated against some major peers and declined against the others. The Greenback advanced 0.70% against the Swissie, while posting minor gains against the Euro (0.30%) and the Loonie (0.18%). The Buck, however, lost 1.01% versus the Kiwi, followed by a 0.59% loss versus both the Sterling and the Aussie.
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."
FOMC Meeting Minutes
With no significant further fundamental news from the Japanese side, the focus shifts to the FOMC Meeting Minutes. The reason for this is the speculation and rising concerns over a possible rate hike delay from the end of 2015 to 2016. The Fed is expected to provide insight on the future rate hike, with the reassurance of a hike in 2015 to strengthen the US currency. Any delay to 2016 is likely to cause a US Dollar selloff, weakening the Buck against other major currencies.
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 anchored around 120, Fed rate hike in sight
The USD/JPY dropped to the support cluster at 119.80 yesterday, which caused the pair to retreat back above the 120.00 major level. Nevertheless, the Buck is likely to fall even deeper today, amid rising concerns of the Fed's rate hike delay. A dovish tone might push the Greenback all the way down to the 118.50 mark, as that area kept the US Dollar from edging lower for more than seven months. Contrariwise, any reassurance of a 2015 rate hike should boost the Buck, helping it elevate to 121.00.Daily chart
The USD/JPY remained under the 200-hour SMA through most of the day, thus, under the 120.00 level. The given SMA keeps pushing the US Dollar down towards the support trend-line, which, from a technical point of view should cause a rebound. However, this might not be the case if the Fed's statement turns out to be dovish.
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 59% of the market (55% previously). In the second case 66% of open positions are long, up from 58% yesterday.
Spreads (avg, pip) / Trading volume / Volatility
The average three-month forecast stands at 120.83
The 121.50-123.00 price interval remains the most popular choice, selected by more than a fifth (21%) of all voters. The second most popular choice is the 123.00-124.50 price range, voted for by 13% of the survey participants. Meanwhile, the mean forecast for January 8 is 120.83, while 40% of the surveyed still assume the Dollar could cost less than 120 yen in three months.
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."