- Buy orders now account for 61% of the market
- Bullish market sentiment returned to its Tuesday's level of 70%
- 20-day SMA represents resistance around 120.13
- Support is around 119.75 (Bollinger band, monthly and weekly PPs)
- The average three-month forecast stands at 120.92
- Upcoming events today: US Import and Export Prices, US Wholesale Inventories, FOMC Members Lockhart and Evans Speeches
The Fed failed to provide relevant information to this year's possible interest rate hike, which caused the Greenback to decline against other major currencies. With rising oil prices, the US Dollar lost 0.88% and 0.68% against the kiwi and the Aussie, respectively; followed by a 0.77% loss against the Swiss Franc. Nevertheless, the Buck remained relatively unchanged versus the Yen, as it suffered only a 0.07% decline.
The number of people who filed for unemployment assistance in the US declined more-than-expected in the week ended October 3, extending a run of applications near decade lows that shows dismissals remain in check. According to the Labour Department report, unemployment claims fell by 13,000 to 263,000 in the reported week, beating market estimates of 274,000 applications. Even though claims data tends to be uneven from week to week, the number of applications has generally been declining since 2009. Nevertheless, other measures of the labour market in the US suggest some cooling in recent months, as the recent NFP figures showed that employers added 142,000 jobs in September and 136,000 in August.
At the same time, the Federal Reserve released the minutes of its most recent meeting in September, when the policymakers decided to hold off on raising the Fed Funds rate. Minutes revealed that the FOMC members are mostly worried about low inflation outlook, while they admit the US has approached the full employment situation. Despite that, the majority of them noted that they are still on track of hiking in 2015, but recent weak jobs' report may postpone the decision to the next year.
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 Export and Import Prices
From the US side, the data on the prices of imported and exported goods into the US is to be released later today. Both are forecasted to improve, while several FOMC members are also scheduled to speak today, perhaps, providing more insight on yesterday's Meeting Minutes and the future interest rate hike outlook. No significant events from the Japanese side are scheduled for today, followed by a Bank Holiday in Japan on Monday.
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 poised to begin recovery
The USD/JPY remained relatively unchanged on Thursday, having lost only eight pips. The immediate support cluster kept the US Dollar afloat and is likely to cause a rebound from the Buck's three-day slump. As a result, the Greenback should return above the 120.00 major level, around which it orbited for a whole month. The upper boarder of the given pair's trading range lies at 120.63, and is unlikely to be reached or pierced today, as the 20-day SMA at 120.13 should slow down the bullish momentum.Daily chart
The up-trend remains intact, as the support line was not broken yesterday. Although the 200-hour SMA prevented the Greenback from rising higher, today's breach should help the Buck reach the weekly high of 120.57, despite the pair being glued to the 120.00 major level.
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 60% of the market (59% previously). In the second case 64% of open positions are long, down from 66% yesterday.
Spreads (avg, pip) / Trading volume / Volatility
The average three-month forecast stands at 120.92
The 121.50-123.00 price interval remains the most popular choice, selected by slightly less than a fifth (19%) of all voters. The second most popular choice is the 123.00-124.50 price range, voted for by 14% of the survey participants. Meanwhile, the mean forecast for January 9 is 120.92, while 39% 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."