- Buy orders hold a small advantage (16 pp) over the sell ones
- 72% of SWFX traders stay short
- 200-day SMA is at 121.50
- Major support around 120.60
- 58% of the survey participants expect the US Dollar to cost less than 120.00 yen in three months
- Upcoming events today and tomorrow morning: FOMC Member George Speaks, US Total Vehicle Sales, BOJ Governor Kuroda Speech, Japanese Consumer Confidence
Nearly all the yesterday's news related to the United States were bearish, coming short of the expectations. The main negative factor was an increasing contraction of the manufacturing sector. Because of this the US Dollar lost the most among the majors - the currency fell from almost insignificant 0.12% against the Yen to as much as 1.31% against the British Pound.
The US manufacturing sector shrank for a fourth consecutive month in January, while employment in the sector plunged to the lowest level in more than six years. According to the Institute for Supply Management, the index for national factory activity climbed to 48.2, up from a revised December's 48.0, with any reading below the crucial 50-mark threshold indicating contraction of the sector. The new orders index rose to 51.5, up from 48.8 in December, whereas the employment index plummeted to 45.9 in January, compared with 48.0 in the prior month. A measure of exports plunged four points to 47, the lowest reading since September.
Separately, US consumer spending remained flat in December, while personal income beat expectations. The Commerce Department reported that personal spending was flat following a revised November's gain of 0.5%, missing forecasts for a gain of 0.1%. Meanwhile, personal income rose by a seasonally adjusted 0.3%, surpassing expectations for a 0.2% gain and following a 0.3% increase a month earlier. At the same time, the core PCE price index was flat last month, below expectations for a gain of 0.1% and after rising 0.2% in November. The core PCE price index rose at an annualized rate of 1.4%, in line with estimates and unchanged from a month earlier. The Fed uses core PCE as a tool to help determine whether to hike or cut interest rates, with the aim of keeping inflation at a rate of 2% or below.
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.
Tuesday's calm to be interrupted by Kuroda's speech early Wednesday
Today's list of events is rather poor, and we do not expect there to be any major exchange rate changes, though the FOMC member George speech is a potential risk event. However, we are more concerned about the events schedule for the early hours of the next day, namely Kuroda's speech and Japanese consumer confidence, which in turn is expected to improve.USD/JPY enclosed between 121.50 and 120.60
While a cluster of numerous studies, including the 100-day moving average and a long-term trend-line, proved to be unable to resist the latest rally, the 200-day SMA successfully weathered increased demand for the Dollar. However, this does not imply a sell-off, being that there is now a significant support area at 120.75/54. Accordingly, the pair needs to breach either 121.50 or 120.75/54 to confirm its intentions. In the first case, the target will be the falling trend-line at 123 yen; in the second, the 2015 low at 115.85.Daily chart
Instead of turning around at 120 yen, a move implied by the rising wedge, USD/JPY broke out of the pattern to the upside. Still, the overall bias remains negative, and we do not expect to see a recovery beyond 123 yen, though in case of a decline support between 119.00 and 119.50 is likely to prove to be strong.
Hourly chart
SWFX bears stay in the lead
OANDA and Saxo Bank clients seem to hold a different view. In the first case 60% of traders are long the Dollar, which is exactly the same as 24 hours ago. However, there was a strong shift in the distribution between the longs and shorts at Saxo, where 67% of open positions are now long, whereas they took up 53% of the market only 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.