- The percentage of buy orders dropped from 64 to 60%
- A considerable majority of traders holds long positions (65%)
- Fingraphs.com: USD/JPY to trade in the 123-125 region in the next few months
- FXPro and Caxton FX: USD/JPY to aim for 135
- Upcoming events: US Unemployment Claims, Pending Home Sales, Japanese Household Spending, Tokyo Core CPI
While the Fed pointed out that the US economy was growing at a sustainable pace with solid job gains and lower unemployment rate, the central bank said that it would maintain short-term interest rates at record low at least until mid-year. In addition to labour, inflation and financial data, policy makers also highlighted that they would take into consideration international developments when thinking about the timing of the first interest rates hike, adding a reference to global markets for the first time in two years. An increasing number of economists expect that the date of the first rate lift could slip to September or even later. Many Fed officials have pointed to a possible rate increase around mid-year, but they also left the door open to a later move. The Fed has kept its benchmark rate near zero since 2008 to boost borrowing, spending and investment and fuel the recovery following the Great Recession.
The Fed's stance sharply contrasts to many central banks in developed countries that have recently eased monetary policy to support faltering economies, being led by the European Central Bank's 1 trillion euro quantitative easing programme to prop up the Euro zone's economy. The policy divergence has pushed the US Dollar to multi-year peaks, a looming concern on the US central bank's radar as the move tends to have a negative effect on US exporters and inflation.
USD/JPY under attack on both fronts
It is a rare occasion, but the currency pair is going to feel the effect of the fundamentals both on the US and Japanese fronts, with the US Unemployment Claims and Pending Home Sales published between 13:30 and 15:00 GMT, and with the Japanese Household Spending and Tokyo CPI in the last half-hour of Jan 29.
USD/JPY steps further away from 119
Simon Smith, Chief Economist at FXPro, is expecting the Yen to weaken next year. He does not rule out a possibility of USD/JPY surging up to 135, reasoning that the Japanese government is going to push ahead with the policy measures to prop up economic growth.
Nicholas Ebisch from Caxton FX shares a similar view, anticipating moderate appreciation of the US Dollar against the Yen over the next 12 months. He forecasts the currency pair to go up to 122 in a month, subsequently reaching a target of 125 by April. According to the analyst, by the end of 2015 the rate may well achieve the level of 135, on the condition the US macroeconomic indicators do not fall behind the expectations and the Japanese officials introduce more easing measures to prompt up inflation.
Daily chart
Since the support at 118 failed to withstand the selling pressure, USD/JPY is now exposed to a decline to 116.0/115.5, where the monthly S1 level is reinforced by the 38.2% Fibo. This zone should act as a floor in the medium term and prevent any attempts of the bears to push the price lower. The US Dollar still retains a notable bullish potential and in the long run should surpass the 2014 peak at 122, which in turn may open a path to the 2007 high at 124.
Hourly chart
Most SWFX traders are long the buck
The current share of bulls is slightly lower than it was yesterday, but this does not change the overall picture, a considerable majority of traders holds long positions (65%). The percentage of buy orders dropped as well, but to a greater extent, from 64 to 60%.
OANDA also reports preponderance of Dollar-optimistic views in its market, with 63% of open positions being long. The sentiment at SAXO Bank, on the other hand, remains neutral with respect to USD/JPY, right now 49% of positions are long .
Spreads (avg, pip) / Trading volume / Volatility
Pair to start bearish correction in April
This week the sentiment of the FX Community members with respect to the USD/JPY pair changed completely to the opposite side, compared to the previous week, as almost 72.7% of all traders are now supporting bearish case for the pair. More than 27% of traders expect the pair to close above the 117.6 level by the end of this working week.