- 52% of all pending orders are to buy the Greenback
- 61% of traders hold short positions
- The weekly S1 and weekly S2 around 119.80 are the nearest resistance
- Immediate support is around 119.15, represented by the weekly S3, the monthly S1 and the Bollinger band
- 51% of the survey participants expect the US Dollar to cost less than 123.00 yen in three months
- Upcoming events today: US ADP Non-Farm Employment Change, US Trade Balance, US ISM Non-Manufacturing PMI, US Factory Orders, FOMC Meeting Minutes
Despite a poor reading of the ISM Manufacturing PMI, the US currency was able to post gains against other major peers. The largest gains were registered against the commodity currencies, namely 1.56% versus the Aussie, 1.15% against the Kiwi and 0.71% against the Loonie. The Cable was 0.40% lower, while the USD/CHF remained relatively unchanged, edging only 0.07% higher. At the same time, the Greenback suffered against the Japanese Yen, which in turn was boosted by the geopolitical tensions in the Middle East and a poor reading of Chinese fundamentals, leading the USD/JPY 0.92% lower.
US manufacturing sector lost some steam in December, as both Markit's and the Institute for Supply Management reported a decline in business activity. According to the ISM, manufacturing PMI came in at 48.2 last month, down from 48.6 in November, whereas economists had predicted the gauge to rise to 49.0. At the same time, the final PMI reading from Markit dropped to 51.2 during the last month of 2015, down from 52.8 in November. Manufacturers continue to struggle with a strong US Dollar, slowdown in China, as well as volatile stock market.
Meanwhile, Fed Vice Chairman Stanley Fischer said the Fed's tool kit proved to be successful in raising the benchmark federal-funds rate after the December decision to hike rates from zero. Fischer highlighted that officials are ready to consider changes should problems arise. The US central bank in mid-December decided to raise the fed-funds rate to a range of 0.25% to 0.50% after keeping it near zero for seven years. There were some concerns about Fed's ability to hike rates, but the fed-funds rate moved into its new range the day following the Fed's decision. Fed policy makers project that they will further raise the target range by a full percentage point over the course of the year, to 1.25%-1.5%.
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."
Quiet Tuesday
There are no events to influence the USD/JPY that are worth mentioning today; however, tomorrow attention should be paid to the US Trade Balance, the Employment figures, as well as the Services PMI and of course – the FOMC Meeting Minutes. The most important events are the ADP Non-Farm Employment Change, it is released by the Automatic Data Processing, Inc. This Employment Change is a measure of the change in the number of employed people in the US. Generally speaking, a rise in this indicator has positive implications for consumer spending, stimulating economic growth. The second event is the US Trade Balance, which is released by the Bureau of Economic Analysis and the U.S. Census Bureau. It is a balance between exports and imports of total goods and services. A positive value shows trade surplus, while a negative value shows trade deficit. It is an event that generates some volatility for the USD. These two economic data releases are forecasted to have mixed results, but, nonetheless, the FOMC Meeting Minutes is the most anticipated event. Information concerning the monetary policy in 2016 is to be provided, as well as another Fed rate hike might occur as early as on Wednesday.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 anchored around 119.40
The Greenback retreated from intraday losses on Monday, after having slumped nearly 150 pips. Today the USD/JPY is located in a rather small trading range between 119.10 and 119.80, the two clusters that attempt to hold the pair's volatility. Technical studies again are not in favour of any specific outcome, whereas the 55-day SMA's breach of the 200-day one to the upside three weeks ago suggests the Buck might soon rebound. However, no sharp movement today is expected, but the bullish momentum is still likely to prevail after an unexpected plunge on Monday.Daily chart
The USD/JPY attempted to return above the up-trend on the hourly chart, but the efforts were in vain. The par keeps gravitating lower, even if the bullish momentum prevails today – the 200-hour SMA is likely to cause an even sharper decline, resulting in a slump under 119.00.
Hourly chart
Bears dominate the market
OANDA and SAXO Bank are similar in the share of their long and short positions. The portion of bulls in the market of the Canadian-based broker slightly weakened today, with 66% of their traders holding long positions (previously 67%); meanwhile, the long and short positions at SAXO Bank now take up 62% and 38% of the market, respectively.
Spreads (avg, pip) / Trading volume / Volatility
More than a half expect the exchange rate to fall under 123 yen
According to the survey conducted between Dec 05 and Jan 05, the US Dollar is expected to cost 120.84 yen in three months. However, according to the most popular price interval, the US Dollar is likely to cost 115.50 yen or less after three months; this price interval was selected by 33% of the voters. The second choice was higher, as 18% of the voters chose the 123.00-124.50 interval. Meanwhile, the majority of 51% believe that the Greenback is to fall below 123.00 yen after a three month period.