- 57% of pending orders are to buy the Dollar
- Shorts remain in a majority with 74%
- The currency pair is still facing a strong supply area, consisting of the 55- and 100-day SMAs
- There is a relatively reliable support trend-line that is drawn through the Jan 20 and Jan 29 lows
- 59% of the survey participants expect the US Dollar to cost less than 120.00 yen in three months
- Upcoming events today: US GDP, Chicago PMI, Goods Trade Balance
Most of the US releases disappointed yesterday, leaving the Greenback among the worst-performing currencies. The Dollar fell 0.90% against the Pound and 0.81% against the Aussie, gaining ground only against the most bearish currency, the Japanese Yen, - plus 0.12%.
The Bank of Japan surprised markets with a negative benchmark interest rate, a move aimed at boosting a faltering recovery in the world's third biggest economy in light of elevated volatility on financial markets and slowing global growth. In a 5-4 vote, the BoJ's policy makers decided to charge a 0.1% interest on current accounts that some commercial banks hold with it. The central bank hopes that the move will encourage banks to lend more and stimulate investment and growth. The BoJ said that it would divide bank's deposits into three tiers, with categories earning positive, zero and negative interest rates. The policy would continue as long as needed to achieve its inflation target. Meanwhile, the central bank pushed back its timeframe for reaching the goal from late 2016 to mid-2017. The BoJ kept its pledge to expand base money at an annual pace of 80 trillion yen through aggressive purchases of Japanese government bonds and risky assets conducted under its QQE programme.
The surprise interest rate decision came in light of data that showed household spending and output fell in December, signalling further the fragile nature of Japan's recovery. Industrial production dropped 1.4% on month in December, while on an annual basis industrial output was 1.6% lower. At the same time, spending by households plummeted 4.4% on year last month, compared with the 2.3% decline expected by analysts.
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 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.
US GDP growth to cool down from previous quarter
There are no more releases regarding the Japanese economy for Friday, and Kuroda's surprise move is already enough for today. Meanwhile, the US GDP number is likely to compensate for the lack of news from Nippon. According to the latest estimates, world's largest economy expanded 0.8% during the last three months of 2015. Next report on Japan is scheduled for Monday - Manufacturing PMI at 02:00 am GMT.USD/JPY probes 200-day SMA
Because of BoJ's unexpected announcement USD/JPY covered the distance between the yesterday's close and 120.50 yen a lot sooner than estimated. However, this does not change the overall picture that the currency pair is still facing a strong supply area, consisting of the 55- and 100-day SMAs. Additional insurance against continuation of Greenback's further appreciation is provided by the 200-day SMA and monthly PP at 121.45/30, meaning there is a high probability of a sell-off from 120.50.Daily chart
The hourly chart suggests USD/JPY may stay high for some days, as there is still a relatively reliable support trend-line that is drawn through the Jan 20 and Jan 29 lows. In case of correction from today's high at 121.40, the currency pair might also find a foothold at 120 yen.
Hourly chart
SWFX traders stay short despite Kuroda's surprise move
In the meantime, the share of long positions at a Canadian-based foreign exchange company grew. OANDA reports that 63% of its clients are long. As for Saxo Bank traders, the percentage of bulls declined to 52% compared to the yesterday's reading of 57%.
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 (59%) 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 30% of the voters; however, according to the votes collected between Dec 27 and Jan 27, the mean forecast for Apr 27 is 118.79. At the same time, 12% of the surveyed believe the Greenback could fall in the 120.00-121.50 price interval after a three month period.
Participants of the latest quiz for Dukascopy Community Forecasts seem to wait for more negative data to be released, as now almost 54% of votes are set short on the USD/JPY currency pair, widely supporting the Yen.
Among bearish Dukascopy Community members, nuonrg suggests that the pair has retraced last week up into the Fibonacci 50 percent level from the beginning of December 2015. However, "it can push towards the 61.8%," he commented.
Meanwhile, a traders with the nickname raposo2 has a positive outlook towards the USD/JPY. He mentioned that "for the USD/JPY it is likely that the re-test the support will be at 119.00 level."