- 52% of all orders are to buy the US currency
- 70% of all open positions remain short
- The weekly S1, up-trend, 20-day SMA and the monthly R1 are the nearest support around 122.15
- Immediate resistance is at 122.91, represented by the weekly PP
- 61% of the survey participants expect the US Dollar to cost more than 123 yen in three months
- Upcoming events today: US Preliminary GDP, US Goods Trade Balance, US CB Consumer Confidence, Japanese Monetary Policy Meeting Minutes
The broadly stronger US Dollar appreciated against most major peers on Monday, despite poor fundamental figures weighing on the crosses. The Greenback added the most against the Kiwi (0.67%) and the Aussie (0.64%), while gains were diminished versus the Loonie (0.14%) and the Euro (0.10%). Nonetheless, the Buck remained relatively unchanged against the Yen and the Swissie, gaining 0.02% and losing 0.01%, respectively.
Sales of existing homes in the US dropped last month from the second highest level since 2007 as a persistent shortage of properties limited momentum in residential real estate. Nevertheless, the housing market remains on a solid footing, with sales for the whole year set for the best performance in eight years. Thus, housing is expected to take up some of the slack from a chronically sluggish manufacturing sector. US home resales declined by 3.4% to an annualized rate of 5.36 million units in October, against economists' expectations of 5.4 million and down from September's 5.55 million. At the same time the median price of an existing home advanced 5.8% from October 2014 to $219,600 amid tight inventories. The number of previously owned homes for sale fell 2.3% last month from September to 2.14 million, the fewest since March. The weak sales came on heels of data showing a decrease in housing starts in October and a decline in confidence among home builders.
Meanwhile, Fed Chair Janet Yellen defended the central bank's low-rate policies, arguing for gradual rate normalization. While the timing of the first rate hike seems settled, the question remains how fast the Fed will be raising rates. Goldman Sachs predicts the Fed to hike four times next year, raising the federal funds rate by 100 basis points.
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 Preliminary GDP
Later today, the US Preliminary GDP will be released by the US Bureau of Economic Analysis. GDP shows the monetary value of all the goods, services and structures produced within a country in a given period of time. Preliminary GDP is a gross measure of market activity because it indicates the pace at which a country's economy is growing or decreasing. However, since this is the second GDP estimate, the effect on the exchange rates might be not as substantial as expected. Nonetheless, the improvements anticipated in the CB Consumer Confidence release are likely to add to the USD strength today, or cause an opposite effect if data disappoints. Furthermore, the BoJ's Meeting Minutes, where further monetary policy stimulus extension or limitation will be announced, are due early tomorrow and are likely to set the tone for Wednesday's early trade.
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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 takes another shot at piercing weekly PP
Poor US fundamentals caused the Greenback to erase all intraday gains and ultimately remain unchanged against the Japanese Yen yesterday. As a result, the USD/JPY opened trade just under the immediate resistance, namely the weekly PP, which might prevent the pair from advancing for another day. Losses, however, should be limited around 122.40, as the up-trend and the 20-day SMA there are providing support. Even though technical indicators retain mixed signals, the USD has a solid chance of breaching the immediate resistance and touching the cluster around 123.50.Daily chart
The USD/JPY failed to preserve the bullish momentum, which resulted in the up-trend getting breached, even despite the 200-hour SMA bolstering that support at the time. The pair now keeps sustaining losses and is likely to continue falling until it reaches the two-week low of 122.22.
Hourly chart
SWFX sentiment strongly 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 59 to 56%, while the long and short positions at SAXO Bank now take up 57% and 43% 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, 61% 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 by almost a quarter (24%) of cases. However, the second most popular intervals, chosen by 13% of the surveyed, were 120.00-121.50 and 127.50-129.00. The mean forecast for Feb 24 is now 124.15.