- The share of buy orders edged up from 49 to 59%
- 65% of all positions are short
- The weekly PP at 120.57 is the nearest resistance
- Immediate support is around 119.70, represented by the weekly S1 and the Bollinger band
- 57% of the survey participants expect the US Dollar to cost more than 123.00 yen in three months
- Upcoming events today: US Goods Trade Balance, US CB Consumer Confidence
The US Dollar suffered moderate losses against most major currencies during Christmas holidays. The largest decline was registered against the Euro, namely 0.47%, followed by a 0.41% loss against the Yen, 0.40% versus the Aussie and 0.39% versus the Kiwi. The Greenback was the most resilient against its Canadian counterpart, losing only 0.20% against it.
Japan's core consumer prices climbed for the first time in five months in November, whereas household spending declined, putting the Bank of Japan's view that robust consumption will boost inflation into question. The core CPI, which includes oil products but excludes volatile fresh food prices, inched up 0.1% in the reported month from a year earlier, beating expectations for a flat reading. The increase followed a 0.1% decline in October. At the same time household spending suffered the biggest annual decline in eight months, falling 2.9% in November from a year earlier. A separate report showed industrial Japan's industrial production dropped for the first time in three months in November, as exports declined more than expected. Industrial output slumped 1% in the measured month from October, compared with the forecast for a 0.5% decline. Measured on an annual basis, production was 1.6% higher.
The data is likely to keep alive expectations that the BoJ Governor Haruhiko Kuroda may introduce additional stimulus measures as early as next month. In a bid to power the world's third biggest economy and to reach the inflation target, the BoJ announced an unexpected tweak to its monetary easing programme. BoJ policymakers rolled out a series of changes, including boosting their holdings in companies dedicated to capital spending and new hiring.
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".
Raig Erlam, senior currency analyst with OANDA, considers that more stimulus from the BOJ is "inevitable", but it is the timing that is yet uncertain. Erlam expects the central bank to hold off this week, but he thinks that "at some point towards the end of the year we may start to see the message being conveyed through to the market that stimulus is coming".
Concerning the GDP growth, the BMI Research 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."
Uneventful Monday
With no significant events concerning the US and the Japanese economies today, attention should be paid to tomorrow's economic data releases, namely the US Goods Trade Balance and US CB Consumer Confidence. The US Goods Trade Balance shows the difference in value between exported and imported goods; it also provides insight in the total Trade Balance data, as trade in goods makes approximately 75% of total trade. The second event, the CB Consumer Confidence is released by the Conference Board and captures the level of confidence that individuals have in economic activity. A high level of consumer confidence stimulates economic expansion while a low level drives to economic downturn. According to the forecast, the CB Consumer Confidence is expected to grow, thus, strengthening the US Dollar..
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Raig Erlam, senior currency analyst at OANDA, reckons that this week's FOMC statement will be "the Fed's last opportunity to convince the market that rates are still on course to be raise this year". In case they exclude this message from the statement, then "they are not going to raise rates this year and we are probably looking more towards the middle of the next year".
USD/JPY attempts to rebound from a fresh two-month low
As was anticipated, the USD/JPY dropped lower through the end of the previous week, after the head of BoJ stated that further QQE in Japan is unlikely. As a result, the Greenback reached a new two-month low against the Yen, eager to recover from these losses today. A correction is possible, but the weekly pivot point is providing resistance at 120.57. Meanwhile, the Bollinger band and the weekly S1 form a support cluster around 119.70, while technical studies indicate another slump is due. Nevertheless, a correction might prevail after the pair plunged for six consecutive days.Daily chart
The USD/JPY failed to regain the bullish momentum closer to week's end, as it extended its bearish trend at a sharper angle. As a result, the pair dropped below the November low, but managed to rebound afterwards, extending gains through Monday morning. The closest level to limit the gains is now at 121.30, namely the 200-hour SMA.
Hourly chart
Bears dominate the market
OANDA and SAXO Bank are similar in the share of their long and short positions. The portion of bulls in the market of the Canadian-based broker increased today, with 68% of their traders holding long positions (previously 66%); while the long and short positions at SAXO Bank now take up 63% and 37% of the market, respectively.
Spreads (avg, pip) / Trading volume / Volatility
More than a half expect the rate to stay above 123 yen
According to the survey conducted between Nov 28 and Dec 28 this year, the US Dollar is expected to cost 122.55 yen in three months. However, the most popular price interval is the 123.00-124.one, voted for by exactly a fifth, namely 20% of the survey participants. The second choice was higher, as 17% of the voters chose the 124.50-126.00 interval. Meanwhile, the majority of 57% believe that the Greenback is to remain above 123.00 yen after a three month period.