- The share of buy orders edged up from 52 to 72%
- 62% of all positions are long (previously 61%)
- 200-day SMA, monthly PP and Bollinger band represent resistance around 121.00
- Support is at 120.33 (weekly PP)
- 66% of traders see the Dollar higher than 120 yen on Dec 28
- Upcoming events today: FOMC Member Tarullo, Dudley, Evans and Williams Speeches, US Core PCE Price Index, US Personal Spending and Income, US Pending Home Sales
The US Dollar appreciated against most major peers, amid a better-than-expected US Final GDP reading. Moderate gains of 0.44%, 0.43% and 0.42% were detected versus the Sterling, the Yen and the Swissie, respectively. Nevertheless, the Greenback declined 0.49% against the Kiwi, while remaining relatively unchanged against the Aussie, losing only 0.04%.
The growth of the US economy in the second quarter of this year was notably quicker than markets had previously anticipated, the second upward revision in a row showed on Friday. According to the Commerce Department, the US gross domestic product rose at a 3.9% annual pace in the three months from April to June, up from a 3.7% advance reported last month, whereas experts forecasted the reading to stay unchanged. In the meantime, consumer spending, which accounts for more than two thirds of the US economic activity, was revised up to a 3.6% growth pace from the 3.1% rate reported in August, helped by cheap gasoline prices and relatively higher house prices, which boosted households' wealth.
In the meantime, the recent data supports the case that the US economy may be gaining enough strength to withstand an increase of key interest rates from record low levels. Moreover, the Fed Chair Janet Yellen kept the door open to the hike this year in her speech on Thursday, as long as inflation remains stable and growth is strong enough to support employment. However, market participants are somewhat concerned that recent headwinds from China's slowdown could dampen the outlook for the further economic expansion of the world's biggest economy.
In response to the latest Bank of Japan meeting, Stuart Allsop, head of financial market strategy at BMI Research, said that no action from the central bank was expected and that they are likely to "refrain from doing any more stimulus this year". However, he noted that "the risks have increased".
Concerning the GDP growth, the analyst doubts that it will "get above 1% anytime in the foreseeable future". The reasons for this are manifold. First, there is "a huge headwind in terms of demographics". Additionally, there is a decline in growth of China coupled with global economic slowdown. However, the main negative factor provided by Allsop is a "very unstable production structure". He explains that the real interest rate is negative, which is "sending contradictory signals to the real economy", and this in turn leads to a low chance of "a productivity boom
As for the Japanese Yen, Allsop is bullish on the currency. In his opinion there are two main contributing factors. The first one is that "investors lose faith in the willingness of the BoJ to act. At the same Allsop adds that the Yen has proven recently its status as a global safe have, and this is beneficial for the value of the currency being that "global financial markets are looking quite shaky", which is negative for the risk sentiment. At the same time, the analyst mentioned that USD/JPY "may fall quite significantly in the coming months", and if this is the case, "this would raise the prospects of intervention from the BoJ."
US Pending Home Sales and US Core CPE
Monday is a busy day in terms of US fundamental data releases. The most important ones are the Core PCE and the Pending Home Sales. The Core CPE is an average amount of money that consumers spend in a month and is a significant indicator of inflation. No changes are expected in both the Core PCE and the Pending Home Sales; however, the Pending Home Sales could show a higher-than-anticipated number, since the New Home Sales figures surprised to the upside last week.
Marcel Thieliant, economist from Capital Economics, forecasts USD/JPY to be at 130.00 by the end of the second quarter. The analyst commented that he expects the BoJ to step up the pace of easing at the end of this month. "This is obviously not what other economists expect, if that happens, we will probably see a strong drop in the Yen against the Dollar and against other major currencies," Thieliant said.
Steve Lucas, technical analyst at 3CANALYSIS, gives their perspectives on the USD/JPY currency pair. "We have persistently been bullish of USD/JPY, but in the very short-term we think there will be a pullback", he said. Steve explained their view by mentioning that since the pair posted the 12.5 year high in June, last week put in a bearish reversal candle, which is a negative signal. "We also think that the deception out there is that the Fed is going to be a little easier on raising interest rates and people are going to be a bit cautious and a bit sensible and take the money off the table", the analyst added.
USD/JPY struggles to climb over 120.63
On Friday, the USD/JPY broke out of the triangle pattern completely, as the exchange rate reached the 121.00 cluster. However, trade still closed only at 120.55, the area which the pair struggled to pierce for three weeks straight. From the technical point of view the Greenback should undergo a correction and drop to 120.12, the point where the 20-day SMA coincides with the support trend-line. Nevertheless, with a number of Fed officials scheduled to speak today, the end-game could be positive for the US currency, but still limited by the resistance cluster around 121.00.Daily chart
Even though the USD/JPY managed to rebound from the support trend-line and the 200-hour SMA, the pair struggled to maintain trade above the 121.00 level. Consequently, the exchange rate retreated to the trend-line and the SMA, testing it again today.
Hourly chart
Bulls preserve majority
OANDA and SAXO Bank also report minor preponderance of bullish market participants. In the first case the longs take up 60% of the market (57% previously). In the second case 54% of open positions are long, down from Friday's level of 62%.
Spreads (avg, pip) / Trading volume / Volatility
66% of traders see the Dollar higher than 120 yen on Dec 28
The average Dukascopy website visitor expects the US Dollar to cost almost 2 yen more in three months' time. Slightly less than a fifth of survey participants (19%) estimates that the Greenback will be worth between 121.50 and 123 yen by the mid-December. At the same time, it is worth mentioning that 58% of the forecasts are above 121.50 and 66% of the given forecasts are set above the level of 120 yen.