- The number of purchase orders increased from 52 to 56%
- Bearish traders' sentiment returned to its Monday's level of 73%
- The up-trend and the 20-day SMA are the nearest support around 122.45
- Immediate resistance is at 122.91, represented by the weekly PP
- 60% of the survey participants expect the US Dollar to cost more than 123 yen in three months
- Upcoming events today: US Durable and Core Durable Goods Orders, US Jobless Claims, US Core PCE Price Index, US Personal Spending and Income, US Markit Services PMI, US New Home Sales, US Crude Oil Inventories
Despite better-than-expected US Preliminary GDP, the US Dollar suffered losses against most major peers, due to demand on safe-haven currencies increasing yesterday. The Largest declines were versus the Aussie, the Kiwi and the Loonie, with the Buck losing 0.88%, 0.50% and 0.45% against them, respectively. The EUR/USD remained relatively unchanged, edging higher 0.06%, but a gain of 0.26% was registered against the Sterling.
The world's number one economy grew faster in the third quarter than originally estimated. Gross domestic product rose at a 2.1% annualized rate, compared with the initial reading of 1.5%, according to the Commerce Department. The consumer spending was the biggest contributor to growth as cheap gasoline and greater job security gave more confidence to spend. Household consumption, which makes up almost 70% of the economy, grew at a 3% annualized rate, slightly less than the previously estimated 3.2%. The final release of GDP data for the third quarter is scheduled for late December. Steady growth in the world's largest economy helps to create jobs and push down the unemployment rate, which Fed policy makers are watching as a gauge of how much slack is left in the labour market. Fed officials are considering hiking the benchmark interest rate as soon as next month, if data continue to indicate that the US economy can weather tighter monetary policy.
Nevertheless, consumer confidence in the US economy weakened sharply in November as Americans became more concerned about the job market. According to the Conference Board, the index of consumer confidence plunged to 90.4 from a revised 99.1 last month, marking the second consecutive monthly drop and the lowest reading since September 2014.
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 Durable and Core Durable Goods Orders
According to the BoJ Meeting Minutes the Japanese economy will recover in Q4 2016, as they are yet unable to reach its inflation target. Some JPY strength was triggered by the report, but the main drivers for today are the US fundamentals. From the US the most significant events today are the Durable and Core Durable Goods Orders. The Durable Goods Orders measure the cost of orders received by manufacturers for durable goods, which means goods planned to last for three years or more, while the Core ones exclude the transport sector. As those durable products often involve large investments they are sensitive to the US economic situation. Both are forecasted to rebound and are likely to be the main drivers today. However, a number of fundamental data from the US are due today, that could have further impact on the market. Even though those secondary events, such as the New Home Sales or Personal Spending/Income, are also forecasted to improve, failure to meet expectations might weigh on the US currency.
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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 on the edge of breaking the up-trend
The USD/JPY appears to be ignoring positive US fundamental data, as the pair dropped 32 pips lower yesterday, even touching the up-trend over the day. Today trade opened just on top of the support trend-line, which should could a rebound today, with the pair edging closer to the 123.00 major level. Nevertheless, the Greenback is still under sufficient pressure and risks piercing the immediate support cluster. The second target lies just above the 122.00 mark, where the weekly S1 coincides with the monthly R1, forming another possible demand.Daily chart
The US dollar has been suffering against the Japanese Yen since the beginning of the week and now appears to be in a rather sharp bearish trend on the hourly chart. However, because of such a sharp angle, risks of it getting breached to the upside are rather high. The previous week's low at 122.22 might contribute to the possible rebound.
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 increased from 56 to 58%, while the long and short positions at SAXO Bank now take up 59% and 41% 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 by almost a quarter (23%) of cases. However, the second most popular intervals, chosen by 12% of the surveyed, were 120.00-121.50 and 127.50-129.00. The mean forecast for Feb 24 is now 124.09.
In course of the week forecasts, sentiment among Dukascopy traders became rather strong for this currency pair, as 75% of trades expect bullish development. The average expectation is located around 122.9.
A trader among the bulls, nuonrg, believes that there is a hurdle to take at 124.51 and, thus, he retains a bullish outlook towards the USD/JPY, with a rally into these near term resistances.
Meanwhile, megajorko, another member of the Dukascopy Community, suggests that Japan is currently in stimulus mode, which means that the currency is depreciating. However, "we are close to some all-time highs and until Fed's decision there will be a slight Bearish mood and probably a correction before any major news," he added.