- The portion of buy orders increased from 56 to 63%
- 73% of traders are short the Buck
- The weekly S1 and the monthly R1 are the nearest support around 122.05
- Immediate resistance is at 122.57, represented by the 20-day SMA
- 58% of the survey participants expect the US Dollar to cost more than 123 yen in three months
- Upcoming events today: Japanese Retail Sales, Japanese Housing Starts, US Pending Home Sales, Chicago PMI
Despite a bank holiday yesterday, the US Dollar managed to appreciate against most major peers, with exception against the Yen. The largest gain was detected against the Aussie, namely 0.36%, followed by moderate gains versus the Swissie (0.19%), the Sterling (0.18%) and the Euro (0.14%). The USD/CAD remained relatively unchanged, edging only 0.03% higher, while the Greenback lost 0.14% against the Japanese Yen.
Orders for long-lasting manufactured goods rose in October following two months of weakness, while a key category that tracks business investment plans surged the most in three months. Orders for durable goods soared 3% last month, according to the Commerce Department, driven by an increase in demand for commercial aircraft. A key category that serves as a proxy for business investment spending climbed 1.3% in October, the best result since July, suggesting that the worst of the drag from a strong Greenback and deep spending cuts by energy firms was over.
At the same time, the number of Americans applying for jobless benefits declined more than expected last week, indicating that labour market conditions continued to tighten. Initial claims for state unemployment benefits declined 12,000 to a seasonally adjusted 260,000 for the week ended November 21, the Labor Department said. The preceding week data was revised to show 1,000 more applications were received than reported initially. Claims have now remained below the 300,000 threshold for 38 straight weeks, the longest stretch in years, and stayed close to levels last seen in the early 1970s. Claims below this level are usually associated with a resilient jobs market.
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."
Japanese Household Spending
With no events from the US or Japan due today, the USD/JPY might retain some of its holiday weakness. On Monday, however, attention should be paid to the Japanese Retail Sales release. Although the markets usually do not react substantially to the Japanese fundamentals, they could still set the mood for the day's early trade. Furthermore, the US is to release the Pending Home Sales data on Monday, which shows the number of homes under contract to be sold, with transactions awaiting to be closed. These Home Sales and the Chicago PMI are likely to be the main drivers in setting the USD/JPY price at the beginning of next week.
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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 stuck around 122.50
On Thursday the US Dollar edged lower against the Japanese Yen, somewhat breaching the up-trend. As a result, price opened further away from the up-trend and risks falling even deeper down, as the 20-day SMA at 122.57 is currently weighing on the pair. The nearest target to limit the dips is around 122.05, represented by the weekly S1 and monthly R1, but technical indicators keep giving bullish signals. The nearest resistance in face of the weekly PP remained unconquered through all of the week and is expected to prevent the USD/JPY from recovering if bulls take over.Daily chart
The USD/JPY remained relatively unchanged yesterday, but touched the resistance trend-line, thus, confirming it. As a result, the pair could weaken today, with the newly formed down-trend providing resistance, although a breach is still possible if bulls take over.
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 59 to 60%, while the long and short positions at SAXO Bank still take up 61% and 39% 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, 58% 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 (21%) of cases. However, the second most popular intervals, each chosen by 11% of the surveyed, were 120.00-121.50, 126.00-127.50 and 127.50-129.00. The mean forecast for Feb 27 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.