- The share of buy orders edged up from 47 to 51%
- A total of 70% of all open positions are short today
- The monthly R2 and the weekly R1 are the nearest support at 123.40
- Immediate resistance is around 124.15, represented by the weekly R2 and the Bollinger band
- 60% of the survey participants expect the US Dollar to cost more than 123 yen in three months
- Upcoming events today: US Jobless Claims, Philly Fed Manufacturing Index, FOMC Members Lockhart and Fischer Speeches, BoJ Monthly Report
The US Dollar experienced mixed performance on Wednesday, due to a bad reading of the US Housing Starts, but the majority of FOMC members voting for a rate hike in December. The Greenback gained the most versus the Swissie, 0.50%, followed by a 0.15% gain versus the Yen. Losses of 0.16%, 0.15% and 0.14% were registered against the Euro, the Sterling and the Loonie, respectively, while the Buck also remained relatively unchanged against the Kiwi (-0.03%) and the Aussie (0.01%).
The minutes of the FOMC meeting in October reinforced the view that the Fed may finally hike interest rates as soon as next month, given job growth and inflation trends remain resilient and continue to improve. Yet, Fed officials remain divided, as some policy makers doubted that economic data available by the December meeting would warrant raising the target range for the federal funds rate. Markets seemed to be getting used to the idea of higher rates in the near future, as the US central bank has now warned about rate hikes so many times. While stocks usually tumble amid increase in rates, equities rose Wednesday, a sign that a rate hike is already prices into markets. Meanwhile, US housing starts dropped to the lowest level in seven months in October, while a surge in building permits signalled the housing market remained on firm footing. Groundbreaking plunged 11% to a seasonally adjusted annual pace of 1.06 million units, according to the Commerce Department. Moreover, September's figure was revised down to a 1.19 million unit pace, down from 1.21 million units. Nevertheless, October marked the seventh consecutive month that starts remained above 1 million units, the longest such streak since 2007. Housing has contributed to economic output growth in each of the last six quarters and is absorbing some of the slack from a sluggish manufacturing sector.
Meanwhile, building permits soared 4.1% to a 1.15 million unit rate in October.
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."
Philadelphia Fed Manufacturing Index
Later today the US Jobless Claims are due. Even though an improvement is expected, the given release tends to have close to no reaction on the USD crosses, therefore, the main event from the US to focus on is the Philadelphia Fed Manufacturing Index. The Philadelphia Fed Survey is a spread index of manufacturing conditions (movements of manufacturing) within the Federal Reserve Bank of Philadelphia. This survey, served as an indicator of manufacturing sector trends, is interrelated with the ISM manufacturing Index (Institute for Supply Management) and the index of industrial production. It is also used as a forecast of The ISM Index. A stronger reading is expected to boost the USD, but according to the forecast (-1.00) the conditions are still worsening, but at a slower rate.
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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 weakens after BoJ leaves policy unchanged
The USD/JPY appreciated only 18 pips on Wednesday, piercing the nearest resistance, which is now forming a support cluster along with the weekly R1. However, the US Dollar got oversold today, leading the exchange rate close to the 123.00 major level, partially triggered by the BoJ's decision to leave stimulus unchanged. The given pair is now under substantial pressure, which could lead to a decline today. The immediate demand area might still limit the losses, while technical indicators are no longer giving bullish signals, suggesting a drop of the USD price is likely.Daily chart
The US Dollar remained above the 200-hour SMA yesterday, but inched closer to it today. Even if the 200-hour SMA fails to hold the losses today, the up-trend is likely to succeed, ultimately causing a rally by week's end.
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 decreased from 55% to 53%, while the long and short positions at SAXO Bank take still take up 48% and 52% of the market, respectively.
Spreads (avg, pip) / Trading volume / Volatility
More than a half expect the rate to stay above 123 yen
Bullish forecasts for USD/JPY appear to be the more common than bearish ones. According to the survey conducted in October, 60% of the three-month estimates for the currency pair are above 123 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 15% of the surveyed, was 120.00-121.50. The mean forecast for Feb 19 is now 123.95.
This time, traders are bearish on the pair, though, the percentage of those, who expect an appreciation, declined to 43%. Nonetheless, the price is forecasted to end this week at 122.8, just slightly above the weekly pivot.
On the bullish side csan86 believes that after the amazing NFP results this cross is stopped by the 123.20 resistance level and the price has been forming a flag pattern. "There is very high possibility for an upside breakout from this pattern (I am expecting 130-150 pips)," he mentioned.
At the same time, on the bearish side rokasltu suggest that "present levels of USD/JPY pair seems to be satisfying both for buyers and sellers, while the rate does not fluctuate much". "I think similar movements will take place during this week again and USD/JPY will go down slightly," he added.