- The share of buy orders edged up from 67 to 72%
- 71% of all positions are still short
- The weekly PP is the nearest support around 122.74
- Immediate resistance is at 122.86, represented by the 20-day SMA
- 56% of the survey participants expect the US Dollar to cost more than 124.50 yen in three months
- Upcoming events today: US ADP Non-Farm Employment Change, US Revised Nonfarm Productivity, US Crude Oil Inventories, Fed Chair Yellen Speech, FOMC Members Lockhart and Williams Speeches, US Beige Book
The US Dollar suffered losses against most major currencies, amid a surprise drop in the ISM Manufacturing PMI. The Greenback lost the most against the Aussie and the Kiwi, slumping 1.31% and 1.42%, respectively. Another notable loss was registered against the Euro, 0.64%, while the Buck also remained relatively unchanged against the Loonie, which in turn suffered from a poor Canadian GDP reading.
US manufacturing activity dropped in November for the first time in three years, as the sector has been faltering due to a strong US Dollar and deep spending cuts by energy firms. However, strong automobile sales indicated the US economy remained on a firm footing. The Institute for Supply Management reported that its factory index declined to 48.6 last month, the lowest reading since June 2009, down from 50.1 in October. While a reading below the key 50-mark threshold signals contraction in manufacturing activity, the gauge remained above 43.1, which is associated with a recession. Manufacturers have been struggling with US Dollar strength, weaker China's and Europe's growth and lower oil prices. The ISM's gauge of new orders dropped 4 percentage points to 48.9 last month. Still, weakness in the sector, which accounts for only 12% of the economy, is unlikely to argue the Fed out of the decision to hike interest rates at its meeting on December 16.
Other data showed a robust increase in construction spending in October, which is likely to offset the drag from manufacturing on fourth quarter economic growth. The Commerce Department said construction spending increased 1.0% to a seasonally adjusted $1.11 trillion rate, the highest since December 2007, after climbing 0.6% in September.
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."
US ADP Non-Farm Employment Change
With no significant events from Japan, all focus shifts to the US data later today. The most important event is the ADP Non-Farm Employment Change. The Employment Change is released by the Automatic Data Processing Inc. and is a measure of the change in the number of employed people in the US. Generally speaking, a rise in this indicator has positive implications for consumer spending, stimulating economic growth. The number of employed people over the previous month is forecasted to rise and provide some insight on the Friday's data. A number of other reports are due and several Fed officials are also scheduled to comment, which could provide additional impetus for the US currency.
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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 gravitates towards 123.00
Weak US fundamentals and a stronger Yen pushed the USD/JPY back under 123.00 yesterday. The immediate support cluster, however, managed to hold the losses, while the pair appears to be consolidating between 122.70 and 123.30 this week. Technical indicators keep showing a rally is due, with the exchange rate returning above the major level of 123.00. The up-trend, on the other hand, might not be reached, unless the US currency receives a strong boost in order to pierce 123.20—where the up-trend coincides with the weekly R1.Daily chart
Despite rather strong volatility, the USD/JPY gave ground for a new up-trend, which along with the 200-hour SMA yesterday, prevented by pair from falling down. The pair, however, remains volatile and momentum is slowing, rising concerns of the newly-formed trend-line getting breached.
Hourly chart
SWFX sentiment strongly bearish
OANDA and SAXO Bank are similar in the share of their long and short positions. The share of bulls in the market of the Canadian-based broker increased from 55 to 59%, while the long and short positions at SAXO Bank now take up 54% and 47% of the market, respectively.
Spreads (avg, pip) / Trading volume / Volatility
More than a half expect the rate to stay above 123 yen
The majority of forecasts appear to be centered around the 124.50 price prediction. However, 56% of traders believe the US Dollar will cost even more after a three month period. The most popular price interval was 124.50-126.00, selected by a fifth (20%) of the voters, whereas the second most popular intervals were divided between 121.50-123.00, 126.00-127.50 and 127.50-129.00, all three chosen by 11% of the surveyed. The mean forecast for Mar 2 is 124.07.
Traders are getting less optimistic about the pair, as the proportion of optimists slipped to 64% this week from almost 75% a week earlier.
Panzer, a member of the Dukascopy Community, suggests that the USD has a strong upward trend against all currencies in your shopping cart. However, "due to some problems lately in some regions of the world, resort to resort. Yen again gets the label of refuge, so the USD/JPY is currently balanced in a narrow range, due to the falling EUR/JPY and GBP/JPY," he commented.
Jignesh believes the US Dollar is to weaken against the Japanese Yen by the end of this week. He backed his view with the following comment: "The USD/JPY is still not able to clear the overhead resistance that has come in the form of a down trendline. Downside pressure will be on the pair again this week, as it's struggling in this area for a few weeks now."