- The number of sell orders lost 2% points down to 66%.
- Bearish market sentiment remains unchanged at 70%
- The weekly PP at 117.28 is the nearest resistance
- Immediate support is around 116.00, represented by the weekly S1, the Bollinger band and the 2015 low
- 55% of the survey participants expect the US Dollar to cost less than 120.00 yen in three months
- Upcoming events today: Philly Fed manufacturing Index, US Jobless Claims, US Crude Oil Inventories, Japanese Flash Manufacturing PMI
The US Dollar weakened against most major peers on Wednesday, amid a weaker raeding of US CPI and Core CPI data. The Greenback plunged the most against the Yen and the Loonie, losing 0.60% and 0.51% against the Yen and the Loonie, respectively. The NZD/USD inched 0.28% higher, while the Cable edged up 0.23%. At the same time, the Buck appreciated 0.15% versus the Euro, while remaining relatively unchanged versus the Swissie (0.08%) and the Aussie (0.01%).
A bunch of worse than expected data was released in the US. Consumer prices unexpectedly declined in December amid drops in food and energy prices. The Labor Department reported the consumer price index declined 0.1%, after being flat in November. Despite the fall last month, costs of living rose 0.7% in the 12 months through December, the biggest gain in a year, following the 0.5% increase in November. The annual inflation rate is climbing as the oil price-caused weak readings in 2015 drop out of calculation. The core CPI, which excludes food and energy costs, rose 0.1%, after climbing 0.2% for three consecutive months. Measured on an annual basis, the core inflation increased 2.1%, the biggest gain since July 2012, compared with a 2.0% rise in November.
A separate report showed US housing starts and permits dropped in December following hefty gains in the preceding month. Groundbreaking declined 2.5% to a seasonally adjusted pace of 1.15 million units. November's data was revised to show 1.8 million unit rate. Nevertheless, December was the ninth month in a row that starts were above 1 million units, the longest run since 2007. At the same time, building permits slipped 3.9% to 1.232 million in December. Housing construction remains subdued by historical standards, although the number of housing units started in 2015 as a whole was 10.8% higher compared to 2014.
Vatsal Srivastava, director at the Blackwater Consulting, explains why the US Dollar is a advancing against the Yen this week. Even though he says that there was nothing fundamentally driving the USD/JPY on Monday, one of the key drivers is the falling oil prices, which is actually boosting the Yen, in his opinion, as there is an addition cause for more QQE. Vatsal Srivastava also mentions that "it is going to be a hard economic ride ahead and there seems to be no light on the horizon for Japan as of now". "Lets hope for the best," he added.
Philly Fed Manufacturing Index is today's main driver
US fundamentals are likely to drive the USD crosses' volatility today. First of all, the Philadelphia Fed Survey, which 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. It is likely to cause some volatility, as a rather gradual change is expected in the figure today. At the same time, the Initial Jobless Claims will be released by the US Department of Labor. The Jobless Claims are a measure of the number of people filing first-time claims for state unemployment insurance. In other words, it provides a measure of strength in the labor market. A larger than expected number indicates weakness in this market which influences the strength and direction of the US economy. Even though there is expected an improvement in the Jobless Claims number, the impact on the market prices is to be mild. However, tomorrow morning the Japanese Flash Manufacturing PMI is due, which is likely to set the mood for the USD/JPY's Friday's trade.USD/JPY to continue sliding to 2015 low
On Wednesday the US currency edged closer to the 2015 low, but managed to recover from the daily low and stabilise just under the 117.00 level. The risk-off sentiment appears to be present today as well, meaning the USD/JPY is poised for more weakness. As a result, the Buck could drop towards the weekly S1—the first level of the immediate support cluster. At the same time, the weekly PP and the monthly S2 form a resistance circa 117.50, which was tested earlier today and triggered a sell-off, suggesting a break is unlikely. Meanwhile, technical studies imply the pair is to suffer another loss.Daily chart
The US currency plunged towards 116.00, but managed to erase most of its losses yesterday. However, the rebound was short-lived, as the supply around the 200-hour SMA was strong enough to cause the USD/JPY to bounce back. The pair is likely to resume trade between the 200-hour SMA and the 2015 low, until sufficient impetus triggers a breakout in either direction.
Hourly chart
Bears dominate the market
Other market participants, such as OANDA and SAXO Group, have a completely different sentiment, as the majority of their traders hold long positions. Among SAXO Bank, 60% of traders are still long the US Dollar, whereas 63% of all positions at OANDA are also long (previously 67%).
Spreads (avg, pip) / Trading volume / Volatility
More than a half expect the exchange rate to fall under 120 yen
The largest half of the survey participants (55%) expect the US Dollar to cost less than 120.00 yen in three months. The most popular choice is the 114.00-115.50 price interval, selected by 31% of the voters; however, according to the votes collected between Dec 21 and Jan 21, the mean forecast for Apr 21 is 118.86. At the same time, 14% of the surveyed believe the Greenback could fall in the 120.00-121.50 price interval after a three month period.
Traders still believe the pair will continue its depreciation, since only 48% of Dukascopy Community members are bullish.
A trader on the bullish side, namely raposo2, suggested that if situation on the global stock markets got better at the beginning of the week, then there would be a big chance the given pair would stay in long-term consolidation between 116.00 and 123.70. "In short term I see some opportunities for little upward movement to 118.40," he added.
On the bearish side, babanu commented that "everybody expected this pair to soar to the sky after the reference increase by the Fed, but strong Yen and sluggish figures from the US sent this pair to the South," supporting his view.