- The share of buy orders contracted from 60 to 51%
- There are relatively less long positions (60%) than yesterday (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 Advance GDP, Chicago PMI, UoM Consumer Sentiment
Retail sales in Japan unexpectedly dropped in December, sapping hopes that the world's third biggest economy has weathered the worst of the post-tax hike recession. Retails sales dropped 0.3% on month in December, while an annual 0.2% growth was against analysts' expectations for a 0.9% gain. Policymakers expect consumer spending to increase this year as the chocking effect of the sales tax hike fades away, and they count on wages to foster pickup in private consumption, which accounts for about 60% of the economy. Japan's core inflation also added to the recent streak of worse than expected data, as the gauge fell for a fifth month in a row in December, pulling the Bank of Japan further away from reaching its price goal. Consumer prices excluding fresh food rose 2.5% on year in December following the 2.7% increase a month earlier and against a 2.6% forecast, while stripping out the effect of sales-tax hike in April 2014, core inflation climbed 0.5%.
At the recent BoJ's monetary policy meeting officials revised downwards their forecasts for inflation over the next two years amid the sharp decline in petrol prices. The central bank now expects inflation of around 0.9% in the 2014 fiscal year compared with the 1.2% forecast in October. The bank's inflation outlook for the 2015 fiscal year was lowered even more dramatically to just 1.0% from 1.7%. Meanwhile, Japan's industrial output also surprised markets to the downside, as it grew less than expected by 1% on month in December versus the 1.3% forecasts by economists.
USD/JPY to stay calm until 13:30 GMT
As there are no Japan-related events scheduled for today, thus the main focus in on the Bureau of Economic Analysis. The agency is expected to reveal a 3% growth of the US economy in the previous quarter after showing 5% three months earlier. This release is going to be followed by the Chicago PMI and Consumer Sentiment figures.
USD/JPY remains contained in a narrow trading range
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
USD/JPY keeps fluctuating around 118, as it still lacks momentum. Nonetheless, as long and the support at 116 stays intact, the long-term outlook will be considered bullish, though there are formidable resistances overhead: 119, 121 and 122. If the key demand level is violated, the outlook will be changed to negative, though there are formidable supports at 115 and 113, represented by the 100-day SMA and up-trend, respectively.
On the hourly chart the long-awaited momentum is likely to appear once the currency pair breaks either the down-trend at 118.40 or the up-trend at 117.60. However, it seems we will get closer to the apex of this triangle before there is a break-out. Therefore the trading range may well decrease even more in the coming days.
Hourly chart
Most SWFX traders are long the buck
The SWFX sentiment remains bullish, but right now there are relatively less long positions (60%) than yesterday (65%), despite the volatility being decreased. The share of buy orders contracted as well, namely from 60 to 51%.
The bulls at OANDA too scaled back their positions. The share of longs dipped from 63 to 59%. At the same time, the gap between the bulls (48%) and bears (52%) at SAXO Bank remains minimal, merely four percentage points.
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.