- 56% of pending orders are to acquite Greenback
- The share of longs plummeted to 51%
- The initial resistance is the monthly R1 at 121.27
- 200-hour SMA is at 112.74
- The average three-month forecast stands at 120.39
- Upcoming events today: US New Home Sales (Sep)
The US Dollar retained its strong bullish momentum that we saw on Thursday and closed Friday mostly in green. The Greenback appreciated the most against the Euro (+0.82%), and gained between 0.65 and 0.52% versus the rest. The only exception was AUD/USD, where the Greenback weakened 0.12%.
US manufacturing activity unexpectedly rose to the highest level in five month in October, suggesting possible improvement in the sector, which is suffering from a strong US Dollar and sluggish global demand. According to the data provider Markit, the US flash purchasing managers' index climbed to 54.0 from 53.1 last month, which was close to the lowest level in two years. The robust start to the final quarter of the year indicates the world's number one economy may be gathering speed again after slowing in the three months through September, for which the PMI surveys estimated annualized GDP growth of 2.2%. The faster growth of export sales is particularly good news and will help to fan fears that the US economy is being hurt by the stronger Dollar and slower growth in China.
At the same time, Americans' expectations for the economy deteriorated to a 13-month low in October. The monthly measure tracking the economic outlook declined to 42 from a September reading of 44.5, according to the Bloomberg Consumer Comfort Index. Some 39% of respondents said the US economy was deteriorating, up from 36% in September. In contrast, 23% said it was improving, the smallest number in 13 months.
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."
Less homes to be sold in September
According to the estimates of the market the number of new single-family homes is expected to fall. The consensus implies that there were 546K new houses sold in September after 552K sold in August (annualised).
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 gains upward momentum
Not only did the currency pair manage to close above 120.50, but it also pierced the 200-day SMA last week, meaning we should expect the US Dollar to strengthen even more in the nearest future. The initial resistance is the monthly R1, followed by the 100-day SMA at 122 yen. Additional obstacles for the rally will be the monthly R2 at 122.66 and the rising resistance line at 123, which has been broken to the downside back in August. Meanwhile, we should be wary of the fact that the weekly studies stay bearish.Daily chart
Just like in the hourly chart of GBP/USD, here we also fail to draw any reliable trend-lines, which makes short-term forecasting less accurate. For the time being, however, the bias is positive, as we have recently stepped over the 200-hour SMA.
Hourly chart
Sentiment dramatically deteriorates
There seems to be no notable difference between the long and short positions at OANDA and SAXO as well. In the first case the bulls and bears take up perfectly equal proportions of the market. We observe a similar situation in the SAXO Bank, where 54% of positons are long and 46% are short.
Spreads (avg, pip) / Trading volume / Volatility
The average three-month forecast stands at 120.39
The 121.50-123.00 price interval remains the most popular choice, selected by a slightly less than a fifth (17%) of all voters. The second most popular choices are the 124.50-126.00 and the 114.00-115.50 price ranges, both voted for by 15% of the survey participants. Meanwhile, the mean forecast for January 23 is 120.39, while 43% of the surveyed still assume the Dollar could cost less than 120 yen in three months.