- Three fourths of orders are to buy Dollar
- The portion of bulls declined from 59 to 57%
- 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 Factory Orders
Activity growth in the US manufacturing sector rose less than expected in January, being undermined by a strong US Dollar and weaker investment from the energy sector. According to Markit, the final US manufacturing PMI came in at 53.9 in January, the same level as a month earlier and the weakest reading in a year. Factory output growth and job creation remained well below last year's highs, raising prospects for a slower pace of growth in the first quarter, Markit said. While lower oil prices resulted in a weaker demand for investment goods from the energy sector, they also seen helping lower manufacturing costs, which declined for the first time in more than two years and boosting consumer spending power, thereby spurring economic growth. However, analysts feared that the US economic growth is growing increasingly dependent on the domestic consumption, which is another reason besides the slowdown "to believe that policymakers will be wary of raising household's borrowing costs via rate hikes any time soon," Markit said.
In addition to that, a separate report from the Institute for Supply Management showed the US manufacturing sector expanded at the slowest pace in ten months in January, with the corresponding index falling to 53.3 in the beginning of the year, compared with 55.5 in December.
US Factory Orders to keep contracting
While there are no Japanese news to be released today, from the US side of the pair the Census Bureau is scheduled to publish the change in the volume of Factory Orders that is expected to be even more negative than a month earlier.
USD/JPY exposed to a dip to 116.00/115.50
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
Although the weekly S1 at 117 succeeded at preventing a decline in USD/JPY for a second time in a row, the short-term risks are to the downside. The currency pair is prone to falling back to 116.00/115.50 region. This in turn may lead to formation of a descending triangle that usually means weakening demand and an increased probability of a bearish break-out. However, as long as the 38.2% Fibo is safe, the overall outlook is considered to be positive.
Hourly chart
Less Dollar-bulls
Appreciation of the Dollar did not encourage more bulls to enter the market, and their portion declined from 59 to 57%. On the other hand, there are now considerably more people willing to purchase the Buck, three fourths instead of 56% observed yesterday, suggesting we are closing in on a formidable support area.
At OANDA the bulls take up 60% of the market (61% yesterday), and at SAXO Bank their proportion is noticeably higher, but declined from 78 to 73% compared to the yesterday's reading.