- The number of orders to acquire the US Dollar increased from 61 to 74%
- Bulls keep growing stronger, as 59% of all positions are now long (previously 54%).
- The monthly R1 implies a ceiling at 121.27
- Immediate support is at 121.00, represented by the 200-day SMA
- Almost two thirds of the surveyed expect the rate to stay above 120 yen in three months
- Upcoming events today: US Advance GDP, US Jobless Claims, US Advance GDP Price Index, FOMC Member Lockhart Speech, US Pending Home Sales, Japanese Household Spending, Japanese National Core CPI and Tokyo Core CPI, Japanese Unemployment Rate, Japanese Monetary Policy Statement
The US Dollar managed to appreciate against most major peers on a hawkish FOMC statement. The largest gains of 1.14%, 1.10% and 1.04% were recorded against the Aussie, the Euro and the Kiwi, respectively. The Greenback struggled the most to appreciate versus the Sterling, adding only 0.24% against it, while even suffering a 0.59% against the third commodity currency, namely the Loonie.
As widely expected the Fed maintained its key interest rates unchanged at its October meeting. But what is more important is the fact the US central bank explicitly stated that it might hike short-term interest rates in December, downplaying recent global financial market turbulence and saying the US labour market was strengthening despite a slower pace of job growth. Individual central bankers have signalled before that they expected to start normalizing monetary policy before year-end. The Fed's FOMC had not previously stated so explicitly in a communique the potential timing of a rate hike. Investors were quick to change their mind, with futures contracts suggesting a 43% possibility of an interest rate hike in December compared to 34% prior to the Fed's statement. Fed officials noted that household spending, which makes up 70% of economic activity, and business fixed investment rose at a solid pace in recent months, coupled with a further strengthening in the housing sector, whereas net exports have been soft.
Now that the Fed has put a December rate hike firmly on agenda, the question is whether the US economy will play along. Third-quarter GDP and jobless claims data are due today, with economic growth being expected to slow significantly.
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".
Raig Erlam, senior currency analyst with OANDA, considers that more stimulus from the BOJ is "inevitable", but it is the timing that is yet uncertain. Erlam expects the central bank to hold off this week, but he thinks that "at some point towards the end of the year we may start to see the message being conveyed through to the market that stimulus is coming".
Concerning the GDP growth, the BMI Research 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 Advance GDP to drive trade
The US side brings a number of data, with the GDP data being the most important one. It is the earliest GDP estimate, thus, it tends to have the most impact on the market. A gradual growth slowdown is expected (from 3.9% to 1.6%), with any change in the figure to drive the USD-crosses accordingly. Although other data releases are due at the same time, only a few are expected to show signs of improvement, such as the Pending Home Sales, but their figures will not be sufficient to outweigh the GDP ones. By day's end the Japanese Household Spending and the CPIs are expected to worsen, pressuring the Yen even more, but the effects of this data are likely to come in play early morning tomorrow.
Raig Erlam, senior currency analyst at OANDA, reckons that this week's FOMC statement will be "the Fed's last opportunity to convince the market that rates are still on course to be raise this year". In case they exclude this message from the statement, then "they are not going to raise rates this year and we are probably looking more towards the middle of the next year".
USD/JPY risks falling back to 55-day SMA
Bulls refused to give up just yet, causing the Greenback to outperform the Yen on Wednesday, even erasing Tuesday's losses. Even with the nearest resistance located at 121.27, namely the monthly R1, the USD/JPY appears to be struggling to climb too far above 121.00. The 200-day SMA is located at the given major level, but keeps failing to hold the losses when those occur, opening the door for a possible decline towards the 55-day SMA. However, according to technical studies the Buck is to extend its rally today.Daily chart
The USD/JPY failed to maintain trade within the possible descending channel, as the 200-hour SMA provided sufficient support to cause a rebound yesterday. The pair almost managed to erase Monday's losses, but the bullish momentum slowed down after reaching the peak of 121.25. The spot price approaches the 200-hour SMA again today, which might trigger another buying-spree.
Hourly chart
SWFX sentiment recovering; OANDA and SAXO Bank traders remain bullish
OANDA and SAXO Bank are similar in the share of their long and short positions. As the price of the US Dollar became more attractive yesterday, the share of bulls in the market of the Canadian-based broker rose from 58 to 60%, while the percentage of long positions at SAXO Bank slightly declined: from 60 to 59%.
Spreads (avg, pip) / Trading volume / Volatility
Almost two thirds expect the rate to stay above 120 yen
Bullish forecasts for USD/JPY appear to be the more common than bearish ones. According to the survey conducted in October, 63% of the three-month estimates for the currency pair are above 120 yen. The most popular price interval turns out to be 123.00-121.50, which was chosen in 18% of cases. However, the second most popular interval, chosen by 17% of the surveyed, was 126.00-124.50. The mean forecast for Jan 29 is 120.85.
Community is bearish on the Greenback
The latest survey among the Dukascopy Community members reveals strong negative attitude towards the US Dollar: 69% of the respondents expect the currency to underperform the Yen this week, while only 31% are bullish.
RacerX is one of the few bulls, who forecasts "USD/JPY to continue upwards limited by the resistance just after 125.20 area which is around the high for the year to date." At the same time, he expects that "the pair will ping pong up and down inside of the 118.00 and the 125.00 range for the remainder of the year." Another contrarian, csan86, claims that USD/JPY "shows strong bullish signs", as "the price broke out successfully from the medium-term rectangle pattern".