- 70% of all orders are to purchase the Buck
- 72% of all positions are short
- The monthly R2 and Bollinger band imply a ceiling at 123.55
- Immediate support is around 122.00, represented by the weekly PP, monthly R1 and 100-day SMA
- More than three quarters of the surveyed expect the rate to stay above 120 yen in three months
- Upcoming events today: US Jobless Claims, Fed Chair Yellen Speech, US JOLTS Job Openings, US Crude Oil Inventories, FOMC Members Evans, Dudley and Fischer Speeches
Due to a bank holiday in the US, the Greenback suffered losses against other major peers. The most significant loss was recorded against the Sterling (0.62%), followed by 0.43% and 0.41% declines versus the Aussie and the Kiwi, respectively. The Buck also declined moderately against the Yen, the Swiss Franc and the Euro, while remaining relatively unchanged against the Canadian Dollar, edging down only 0.10%.
US job growth accelerated at a much faster pace than expected in October following two consecutive months of tepid gains, setting the stage for the December rate hike. Nonfarm payrolls surged 271,000 last month, the biggest increase since December 2014, according to the Labor Department. The number was well above economists expectations of 182,000 new jobs. Payrolls data for August and September were revised to show 12,000 more jobs added than previously reported. The strong rebound in payroll creation in October lifted the three-month average to 187,000. The US unemployment rate declined to 5.0%, the lowest level in more than seven years.
The employment report joined October's robust services sector and auto sales data in reinforcing views that economic growth will regain steam in the fourth quarter after slowing down sharply to a 1.5% annual pace in the July-September period. The services sector added 241,000 jobs in October, with large gains in retail, health and leisure. Fed policy makers will see one more employment report released in December, about two weeks prior to their final meeting this year. However, given the strong rebound in payrolls in October, few rate setters should doubt that the economy's readiness for a rate hike.
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 JOLTS Job Openings, Janet Yellen's Speech
No further events from Japan are scheduled for today; however, a number of events from the US are to be focused on, such as the US JOLTS Job Openings. It shows the number of job openings during the reported month with exception of the farming industry. Despite its late release, the Job Openings could still have a significant impact on the market, as it is a leading indicators of overall employment. According to the forecast, the number of jobs is expected to increase, while the number of people applying for unemployment benefits is forecasted to decrease; therefore, the Buck is also likely to strengthen. However, the main event is still the Fed Chair's Speech, since the head of the central bank has direct influence on the interest rates. Volatility during Yellen's speech is likely to take place, while any hints concerning future monetary policy are likely to set the according trading mood.
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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 stuck between 122.00 and 123.50
The US Dollar dropped slightly below 123.00, but remained at a ten-month high. With no support or resistance neither pierced nor tested, the Buck is likely to resume trade in its current tight range, namely between the cluster around 123.55 and the one around 122.00. However, technical indicators are now emitting distinctly bullish signals, suggesting a rally is imminent. As a result, chances of the monthly R2 and the Bollinger band around 123.55 getting tested today increase; a sell-off would still not be a surprise, as the USD/JPY keeps undergoing a post-NFP correction.Daily chart
The USD/JPY is on the verge of breaking the up-trend, as the exchange rate failed to find support yesterday and edged below 123.00. The Greenback is making attempts to regain its bullish momentum, but with yesterday's breach price might fall deeper down and touch the 200-hour SMA near 122.00.
Hourly chart
SWFX sentiment deteriorating; 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 returned to its Tuesday's level of 54%, while the long and short positions at SAXO Bank are even closer to equilibrium today, with bulls outnumbering the bears by two percentage points.
Spreads (avg, pip) / Trading volume / Volatility
More than three quarters 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, 77% of the three-month estimates for the currency pair are above 120 yen. The most popular price interval turns out to be the 124.50-126.00 one, which was chosen in slightly less than a quarter (24%) of cases. However, the second most popular interval, chosen by 16% of the surveyed, was 120.00-121.50. The mean forecast for Feb 12 is 122.77.
Compared to the previous week, traders' opinions changed significantly. Today close to 90% of them are bullish, expecting the US Dollar to outperform the Japanese Yen by the end of the week.
One of the traders amongst the bulls, a member with a rather strange community nickname, consisting of only three question marks, commented that "the USD/JPY have broken 121.75% level as well as the trend-line." He, therefore, believes the market will surely go upside and touch the 124.43 level.
Among the remaining 12.5% of bearish traders, Daniil_Stolnikov, said that the resistance did not manage to reach the 123.33 level, hence he is expecting a bearish development.