- The sell orders are outnumbering the buy ones by 2% points
- Bearish market sentiment returned to last Tuesday's level of 73%
- The weekly R1 and monthly R2 imply a ceiling at 123.40
- Immediate support is at 122.87, represented by the weekly PP
- More than three quarters of the surveyed expect the rate to stay above 120 yen in three months
- Upcoming events today: US CPI and Core CPI, US Capacity Utilization Rate, US Industrial Production
The American Dollar outperformed most major peers on Monday, with the smallest gain registered against its Canadian counterpart (0.06%). The Euro and the Kiwi suffered the most, allowing the Buck to advance 0.82% versus the European currency and 0.73% against the New Zealand one. Moderate gains were recorded against the Aussie (0.50%), the Yen (0.46%), the Swissie (0.37%) and the Sterling (0.23%).
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 day for Japan in terms of fundamental data, therefore, all focus is set on the US ones. The most important event is the CPI report. The Consumer Price Index is released by the US Bureau of Labor Statistics and is a measure of price movements by the comparison between the retail prices of a representative shopping basket of goods and services. The purchase power of USD is dragged down by inflation. The CPI is a key indicator to measure inflation and changes in purchasing trends. Both the early and monthly CPIs are expected to show signs of growth again, while the US Industrial Production to rebound as well. As a result, the Greenback has solid chances of posting gains against most major currencies for a second day in a row.
.
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 sets eye on a new high
Due to Japan falling back into recession, the USD/JPY currency pair managed to breach the immediate resistance and close trade near the 11-week high. Today the Greenback is likely to extend yesterday's rally and possibly even establish a new 13-week high, but in order to do so, the given pair first requires to pierce the cluster in form of the weekly R1 and monthly R2 around 123.40. A fresh 13-week high is also expected to set the Buck on a path of reaching the 2015 high, unless the immediate resistance pushes the USD/JPY back under 123.00.Daily chart
The 200-hour SMA helped the USD/JPY to regain the bullish momentum without the retest of the up-trend yesterday. The Buck keeps edging higher, but the previous week's high, namely 123.60, might provide some obstacles and even cause the Greenback to bounce back down.
Hourly chart
SWFX sentiment rather bearish; OANDA 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 increased to 57%, while the long and short positions at SAXO Bank take also take up 48% and 52% 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, 78% 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 by more than a quarter (26%) of cases. However, the second most popular interval, chosen by 16% of the surveyed, was 120.00-121.50. The mean forecast for Feb 17 is 123.14.