- Percentage of orders to sell the Greenback soared from 42 to 75%
- There are less bears than yesterday—their portion fell from 72 to 68%
- Near-term trend-line is at 120.40
- Up-trend and 200-hour SMA create support at 119.60/40
- 58% of the survey participants expect the US Dollar to cost less than 120.00 yen in three months
- Upcoming events: US ADP Non-Farm Employment Change, ISM Non-Manufacturing PMI, Crude Oil Inventories
Yesterday, the US Dollar was among the currencies that showed mixed performance, mainly because of a lack of US economic releases. USD/JPY, however, preserves its volatility as a result of the recent move by the Bank of Japan - minus 0.84% for Feb 2. Meanwhile, the upcoming data releases on the USA will likely make sure that turbulence persists.
Bank of Japan Governor Haruhiko Kuroda said the BoJ has ample room to increase further monetary accommodation and is ready to cut interest rates deeper into negative territory. Even after launching what Kuroda described as "the most powerful monetary policy framework in the history of modern central banking," the Governor is prepared to deploy new tools to support the world's third biggest economy if existing tools appeared to be ineffective. The BoJ chief said although Japan's economy was recovering moderately, it was taking longer than expected to reach the 2% inflation target due to slumping energy costs. Kuroda added that the recent global markets rout and slowing emerging economies could undermined Japanese business sentiment and discourage firms from increasing wages. However, Kuroda remains optimistic on China's outlook, saying the world's second biggest economy was likely to ensure stable growth as policy makers have a lot of opportunities to provide additional fiscal and monetary stimulus measures.
The BoJ stunned global financial markets by following European counterparts, when it introduced negative interest rates on January 29. The central bank will charge a 0.1% interest on some of the excess reserves financial institutions park with the BoJ, while keeping its existing asset-buying programme unchanged.
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.
Yen to pass the baton
Today, the US Dollar might take Yen's place in being the driver behind USD/JPY volatility. In the afternoon, ADP is expected to show slower job creation in January (193K) than in December (257K). The ISM non-manufacturing PMI is also estimated to be bearish - 55.1 after 55.3 a month earlier.USD/JPY chooses bearish path
Despite the support from the technical indicators the latest rally from 116.50 yen proved to be unable to extend beyond the 200-day SMA, meaning the outlook remains bearish. Even if USD/JPY breached 121.50, there would still be a major down-trend at 123. Accordingly, while there might be a small recovery from 119.60, the recent gains are likely to be eventually negated. Beneath the weekly pivot point the next target should be the weekly S1 level at 117.50, followed by the 2015 low at 115.85.Daily chart
In the hourly chart the pair is trading between two converging trend-lines, and the support line, despite its seniority and the 200-hour SMA standing nearby, is likely to give in because the overall outlook, derived from the daily chart, is bearish. Still, considering the strength of demand at 119.60/40, it may take some time before the bears manage to push through this area.
Hourly chart
Sentiment differs across brokers
In the meantime, OANDA and Saxo Bank traders have exactly the same attitudes with respect to the US Dollar - two thirds of them are long the currency. And while this implies no change in the distribution between the bulls and bears for Saxo, only 60% of positions were long at OANDA just yesterday.
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 (58%) 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 27% of the voters; however, according to the votes collected between Jan 01 and Feb 01, the mean forecast for May 01 is 118.56. At the same time, 15% of the surveyed believe the Greenback could fall in the 120.00-121.50 price interval after a three month period.
Traders are getting more upbeat about the pair, as the proportion of optimists advanced to 75% this week from merely 45% a week earlier. The consensus forecast, however, stands for 120.7. Some of the traders believe the advance could be even more impressive, with Jignesh saying "an unexpected rate cut from the BoJ caught everyone by surprise," and adding that "several market participants who were waiting patiently for good levels to look at short positions, will now be buying dips in this pair" and "upside resistance is at 2015 highs." Meanwhile, almost all the traders think the pair will show new highs.
Likerty is bearish on USD/JPY, saying that "the pair retraced last week up into the Fibonacci 50 percent level from the beginning of December 2015" and "it can push towards the 61.8 level."