- The number of purchase orders surged from 50 to 62%
- 52% of all open positions are long
- The nearest resistance is around 113.05, namely the weekly S2 and the down-trend
- Major demand area is seen circa 112.00 yen
- 54% of the survey participants expect the US Dollar to cost more than 120 yen in three months
- Upcoming events: US Retail and Core Retail Sales, US Import Prices, US Preliminary UoM Consumer Sentiment, FOMC Member Dudley Speech, Japanese Preliminary GDP, Chinese Trade Balance
The US currency underwent another series of declines on Thursday, having appreciated only against the Sterling and the Loonie. This is probably not a surprise, but safe-haven asset demand caused the USD/JPY to slump 0.82%, although less than first anticipated. The Buck also suffered a rather serious loss of 0.45% against the Kiwi, while the AUD/USD inched only 0.19% higher. At the same time, the Greenback managed to outperform the Sterling by 0.33%, but the USD/CAD remained relatively unchanged, posting only a 0.08% gain.
During the second-day testimony to Congress Fed Chairwoman Janet Yellen stressed that the US central bank was not on a "pre-set" path to normalize the monetary policy amid deteriorating meltdown in global equity markets. As recessions fears build in the US, Yellen did not excluded a "chance" of a downturn ahead. She also said that the Fed is studying whether negative interest rates would help in case conditions worsen further. The Fed had considered negative interest rates in 2010, but decided to refrain. The head of the world's most influential central bank admitted that a weakened global economy and a sharp drop in stock markets was tightening financial conditions quicker than the Fed estimated. Yet, Yellen warned against making hasty conclusions about the extent of threat from overseas to the US economy.
However, Yellen still expected the Fed to gradually hike interest rates this year given resilient US labour market and steady economic growth. The recent report released by the Labor Department revealed that the number of Americans applying for unemployment benefits dropped more than expected last week. Initial claims for jobless benefits dropped 16,000 to a seasonally adjusted 269,000 for the week ended February 6, whereas economists had predicted 281,000 applications. The four-week moving average of claims fell 3,500 to 281,250 last week.
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 Retail and Core Retail Sales
The most important economic data releases today concern the US economy, namely the Retail and the Core Retail Sales. Both are released by the US Census Bureau and show the monthly data of all goods sold by retailers. The Core Retail Sales, however, exclude automobile sales. The Retail Sales sector index is often taken as an indicators of consumer confidence. Figures in both releases are expected to rebound from the previous negative results. Furthermore, later today the Reuters/Michigan Consumer Sentiment Index is due. The Reuters/Michigan Consumer Sentiment Index is released by the Reuters/University of Michigan and is conducted from a survey of personal consumer confidence in economic activity. It shows a picture of whether or not consumers are willing to spend money. Since the Consumer Sentiment is a leading indicator of Consumer Spending, it should have a considerable impact on the market. From Japan there are no events planned for today, but early Monday morning the Japanese Preliminary GDP is to be released, which is likely to set the mood for the Asian session that day.USD/JPY falls on Fed rate hike delay speculation
The USD/JPY partially recovered from its intraday low of 111.00 on Thursday, as Yellen's remarks dispersed some speculation concerning the Fed's monetary policy. However, the pair still closed with a 90-pip loss and is showing little sign of a possible rebound today. The rally could occur, pushing the pair towards the weekly S2 and the down-trend around 113.05, with a chance to even put the monthly S2 at 113.88 to the test. The more probable outcome remains a decline beyond the 111.78 level, namely the monthly S3.Daily chart
The USD/JPY's partial recovery yesterday contributed to the preservation of the descending channel. Right now the pair is stuck in between the trend-line and is expected to maintain trade within the channel over the day, putting either trend-line to the test, depending on the US fundamental data results.
Hourly chart
SWFX sentiment stays bullish
Traders at OANDA and Saxo Bank have a diametrically opposite view of the pair's future. Clients of both brokers are mostly bullish. Canadian-based foreign exchange company reports that 66% of open positions are long (previously 63%), and the Danish bank reports that 59% of its clients' positions are long, compared to 56% previously.
Spreads (avg, pip) / Trading volume / Volatility
More than a half expect the exchange rate to rise above 120 yen
The largest half of the survey participants (54%) expect the US Dollar to cost more than 120.00 yen in three months. The most popular choice is the 120.00-121.50 price interval, selected by 18% of the voters; however, according to the votes collected between Jan 12 and Feb 12, the mean forecast for May 12 is 119.17. At the same time, 13% of the surveyed believe the Greenback could fall in the 121.50-123.00 price interval after a three month period.
Over the week market sentiment improved for the benefit of USD/JPY's bears. At the same time, a fragile majority (52%) of all participants in the quiz see the Buck rebounding in the period of February 5-12.
According to Likerty, "USD/JPY wants to test 119.40's before continuing its bearishness." He also mentioned that the "inability to hold 116.80's opens 116.1x, after which bullishness will have its chance again."
Babanu, a trader of the Dukascopy Community, believes that during the last day of the previous week "we had a steep drop of this pair, and a decline is most likely to continue due to the lack of ability from the BoJ to weaken the Yen and recent weakness in the US Dollar."