- The share of buy orders increased from 74 to 78%
- 62% of traders retain a negative outlook towards the Buck
- The monthly R1 implies a ceiling at 121.27
- Immediate support is at 121.02, 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 Employment Cost Index, US Core PCE Price Index, US Personal Spending and Income, US Chicago PMI, US Revised UoM Consumer Sentiment and Inflation Expectations, FOMC Member Williams Speech
The Buck failed to retain its bullish momentum against most major currencies, as the GDP figures disappointed. The largest losses were recorded against the Euro (0.48%) and the Swissie (0.47%). However, the Greenback managed to appreciate 0.54% versus its Australian counterpart, while remaining relatively unchanged against the Kiwi and the Yen, adding 0.04% and 0.03%, respectively.
The US economy slowed sharply in the third quarter of 2015, reflecting a cutback in businesses' stockpiling of goods, while underlying demand remained healthy in the world's biggest economy. According to the Department of Commerce, the advanced estimate of third quarter GDP rose at an annualized rate of 1.5%, slightly missing a 1.6% growth forecast. The July through September reading marks a sharp deceleration from the second quarter, when the economy expanded at a 3.9% rate. Nevertheless, economists claim that the inventory drag, which was the main reason for steep decline in the pace of economic growth in the third quarter, is likely to be temporary. Therefore, the US GDP growth is expected to pick up in the fourth quarter given strong domestic fundamentals.
Meanwhile, weekly layoffs data from the US are showing no sign of slowdown in labour market trends, as a measure of jobless claims fell to its lowest level since 1973. As the Department of Labour revealed, initial claims for state unemployment benefits advanced 1,000 to a seasonally adjusted 260,000 for the week ended October 24. The recent economic data from the US confirms the Fed's words that domestic economy is expanding at a "moderate pace", while the possible December's rate hike is still on the table.
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 Employment Cost Change
The BoJ kept its monetary policy unchanged, ignoring the weak inflation figures. Rather strong downside volatility was experienced by the USD/JPY after the BoJ's decision, but the Buck quickly recovered. Further attention should be paid to the US fundamentals. A number of events are due today, with the most important one being the Employment Cost Index; it shows the change in price business and the government pay for civilian labor and provides insight on consumer inflation. According to the forecast, the Employment Cost Index is expected to increased, thus strengthening the US currency. On the other hand, the Personal Income and Spending are both expected to worsen. Mixed data is likely to provide volatility to US crosses, but ultimately, the number of positive releases should outweigh the number of negative ones.
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".
200-day SMA keeps USD/JPY afloat
The BoJ leaving its monetary policy unchanged in spite of weak inflation data caused rather strong downside volatility in the USD/JPY this morning. However, a broadly stronger US Dollar remained unchanged against the Yen yesterday, when GDP figures disappointed, and it is not allowing the Japanese currency to maintain trade below the 121.00 level today. The worst case scenario is a drop to 120.20, the area between the 20 and 55-day SMAs, but technical studies suggest a rally. Gains are likely to be limited by the 100-day SMA and Aug 27 high around 121.80.Daily chart
The USD/JPY is now supported by a trend-line, which is not yet fully confirmed. Nonetheless, the 200-hour SMA keeps bolstering the given support and preventing the pair from edging lower. If the fundamentals do not disappoint too much, the Buck is likely to close above 121.00.
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. The share of bulls in the market of the Canadian-based broker fell from 60 to 56%, while the percentage of long positions at SAXO Bank declined even further: from 59 to 54%.
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 124.50-126.00, which was chosen in 18% of cases. However, the second most popular interval, chosen by 17% of the surveyed, was 121.50-123.00. The mean forecast for Jan 30 is 120.9.
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".