- The portion of buy orders sharply dropped from 76 to 49%
- Bullish market sentiment returned to its Tuesday's level of 74%
- The Bollinger band and the weekly S1 represent resistance around 119.05
- Support is around 118.65 (weekly S3 and monthly S1)
- The average three-month forecast stands at 120.77
- Upcoming events today: US CPI and Core CPI, US Jobless Claims, US Empire State Manufacturing Index, Philadelphia Fed Manufacturing Index, FOMC Member Dudley Speech, US Crude Oil Inventories
The Greenback declined against other major currencies on worse-than-anticipated fundamental data. The largest loss was registered versus the Kiwi (2.16%), followed by a 1.48% decline against the Sterling. Moderate losses ranging between 0.77% and 0.85% were recorded against the Yen, the Aussie, the Loonie, the Euro and the Swissie.
Sales at US retailers rose modestly in September after being flat in August, the Commerce Department reported. Retail sales climbed 0.1%, against economists' expectations for a 0.2% growth. Americans boosted their spending at auto dealers, restaurants and clothiers in the reported month, whereas cheaper gasoline prices suppressed overall retail sales growth. Over the past 12 months, sales have increased 2.4%. Auto purchases surged 1.8% last month, while spending at restaurants edged up 0.7% and shopping at clothiers rose 0.9%. Retail sales excluding automobiles, gasoline, building materials and food services declined 0.1%, following a downwardly revised 0.2% gain in August. Core retail sales correspond most closely with the consumer spending component of GDP.
Spending increased amid a surge in hiring, with 2.8 million jobs created in the past year, but has since slowed in recent months. The slowdown, triggered largely by global headwinds, raised questions about whether retail sales and consumer demand can sustain economic growth in the coming months. US GDP rose a seasonally adjusted annual rate of 3.9% in the second quarter, up from previously reported 3.7%.
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 CPI and Philly Fed Manufacturing Index
The most important events today are the US CPI and the Philadelphia Manufacturing Index. The CPI is released by the US Bureau of Labor Statistics and is a measure of price movements by the comparison between the retail prices of a representative shopping basket of goods and services. The purchase power of USD is dragged down by inflation. The CPI is a key indicator to measure inflation and changes in purchasing trends. According to the forecast, the inflation is expected to slow down. The Philly Manufacturing Index is a spread index of manufacturing conditions (movements of manufacturing) within the Federal Reserve Bank of Philadelphia. This survey, served as an indicator of manufacturing sector trends, is interrelated with the ISM manufacturing Index (Institute for Supply Management) and the index of industrial production. It is also used as a forecast of The ISM Index. Although improvements are anticipated in the given index, the figure is still likely to be negative and, thus, weigh on the US currency.
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 on the edge of breaking ten-month support
Although the Buck broke out of its four-week consolidation range, the wider trading range remains intact. Technical indicators are now giving bearish signals, but a tough support rests near 118.50, as it held the pair from falling since February 2015. Another set of very weak data is required to push the USD/JPY beyond this level; therefore, a rebound is possible, with the Greenback's upside border lying around the 120.00 level, also surrounded by a number of resistances. However, risks of breaking the 118.50 support also persist, which could then trigger a sharper fall towards the Jan low.Daily chart
The break through the support trend-line on Tuesday caused the USD/JPY to fall deeper towards the 118.50 support line. Although this level held the Greenback afloat for several months, the pair keeps steadily going down. Unless the bullish momentum is regained after the fundamental data today, the Buck is to start declining towards the Jan low at 115.85.
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 66% of the market (61% previously). In the second case 69% of open positions are long, up from 66% on Wednesday.
Spreads (avg, pip) / Trading volume / Volatility
The average three-month forecast stands at 120.77
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 the 114.00-115.50 price range, voted for by 15% of the survey participants. Meanwhile, the mean forecast for January 15 is 120.77, while 42% of the surveyed still assume the Dollar could cost less than 120 yen in three months.
Traders' verdict concerning the USD/JPY performance is rather positive, as 56% of them expect the Buck to climb higher versus the Japanese currency by the end of the week.
One of the members of the Dukascopy Community, PPanM, expects the Greenback to edge higher versus the Yen by the end of the week. He explain his view with the following comment: "the USD/JPY market is going to continue to be choppy and moving sideways. I do think this pair goes higher given enough time and break above the 121." Nuonrg, another survey participant, believes that the pressure is on the USD/JPY, as the pair has been channelling on 4H chart since September 8. "October, perhaps, has the possibility to make this pair break the range and move out of it. The price is moving lower on the daily chart, so I prefer a move lower before we might see some bounce or move higher as the weekly uptrend is still in place. This week ends at the 120.200 level, perhaps, it moves into 120.80 but then lower", nuonrg explained.