- The portion of orders to acquire the US currency declined from 74 to 54%
- The share of short positions remains rather high at 74%
- The weekly PP implies a ceiling at 122.87
- Immediate support is around 122.10, represented by the weekly S1 and monthly R1
- More than three quarters of the surveyed expect the rate to stay above 120 yen in three months
- Upcoming events today: US Empire State Manufacturing Index, US CPI and Core CPI, US Capacity Utilization Rate
The Greenback experienced mixed performance on Friday and over the weekend, with gains outweighing the losses. The USD/CHF went up 0.60%, while the EUR/USD declined 0.37%. The US Dollar also added 0.24% against its Canadian counterpart, while remaining relatively unchanged against the Kiwi (0.03%). The USD/JPY remained completely flat, but slight declines were registered against the Sterling (0.03%) and the Aussie (0.09%).
US retail sales rose less than expected in October due to a surprise decrease in automobile purchases, signalling Americans remained cautious about opening their wallets despite robust job growth and accelerating wages. Consumer spending at retail stores and restaurants climbed just 0.1% from the preceding month to a seasonally adjusted $447.3 billion in October, according to the Commerce Department. Economists, however, had predicted a 0.3% increase after a zero growth in September. The October increase was largely driven by sales at non-store retailers, including online shopping, which increased 1.4% last month. Yet, that was barely enough to compensate for a 0.5% drop in auto sales and motor vehicle parts, along with sluggish sales at gasoline stations. At the same time, core retail sales edged up 0.1% in the reported month.
The US economic growth slowed to a 1.5% annual pace in the third quarter as businesses struggled with an inventory glut and energy companies continued to cut back spending in response to lower oil prices. The retail sales data signalled the economy got off to a pretty slow start to the final trimester, which is something Fed officials will have to consider when they ponder whether to hike rates at their December 15-16 meeting.
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."
Another uneventful Monday
Another quiet Monday is in store for us today, with the only event to influence the USD/JPY being the US Empire State Manufacturing Index. Even though the index is expected to improve, the figure is still likely to remain below 0, thus, indicating worsening conditions overall. Nevertheless, on Tuesday a number the US CPI and Core CPI are due, as well as the Capacity Utilization Rate and the Industrial Production. Those reports are expected to cause volatility and be the main drivers tomorrow.
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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 rises on risk aversion
Even though the USD/JPY currency pair's exchange rate barely changed on Friday, despite weak US fundamental data, a 34-pip drop occurred over the weekend. The Greenback appears to be determined to recover from a full week of losses, with the nearest resistance located only at 122.87, namely the weekly PP. The monthly R1 and weekly S1 are forming a demand area around 122.10, which with the bullish technical indicators are increasing the US Dollar's chances of closing near the Friday's opening price.Daily chart
The USD/JPY has been climbing higher for a month now, with the exchange rate edging closer to the up-trend this week. A retest would not be a surprise, but a regained bullish momentum (after sliding down during the previous week) also would not strike as odd, as the 200-hour SMA is providing support around that area.
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 remained unchanged at 55%, while the long and short positions at SAXO Bank take also take up 55% and 45% of the market, respectively.
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 exactly a quarter (25%) of cases. However, the second most popular interval, chosen by 16% of the surveyed, was 120.00-121.50. The mean forecast for Feb 16 is 123.04.