- Share of buy orders has contracted from 70 to 58% within the last 24 hours
- Bulls constitute 61% of the market
- 200-hour SMA represents resistance at 120.36
- Support is at 119.60
- 78% of traders see the Dollar higher than 120 yen on Dec 17
- Upcoming events: US CB Leading Index (Aug)
The US Dollar added to the losses made on Wednesday. The currency gave up 0.98 and 0.86% of its value relative to the Euro and Swiss Franc respectively. The Greenback strengthened 0.14% versus the Australian Dollar and 0.05% versus the Canadian peer.
The Fed maintained interest rates unchanged at its crucial September meeting in light of worries about the global economy, financial markets turbulence and tepid domestic inflation. Yet, the US central bank left the door open for a modest policy tightening later this year. Even though the Fed's post-meeting statement said Jeffrey Lacker, the hawkish President of the Federal Reserve Bank of Richmond, insisted on increasing the Fed's target range on overnight rates, the overall tone of the statement was dovish. Fed Chair Janet Yellen said that the main drag on the US economy came from a precipitous decrease in oil prices over the past year, which restrained business investment due to considerable contraction in oil drilling activity. Moreover, Yellen highlighted that a recent decline in US stock prices and an increase in the value of the Dollar already were tightening conditions in financial markets, which could hamper US economic growth regardless of how the Fed acts.
The Fed expects the economy to grow 2.1% this year, slightly faster than previously estimated. However, its forecasts for GDP growth in 2016 and 2017 were revised downwards. The US central bank also forecast inflation would climb only slowly toward its 2% target even as unemployment falls lower than previously expected. It sees the jobless rate hitting 4.8% next year and remaining at that level for as long as three years.
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".
A quiet day after the storm
The aggregate gauge of future economic health of the United States based on 10 leading indicators is expected to grow by 0.2% after 0.2% contraction in July. However, the event is considered to have a low impact on the markets, since it uses already published data on labour market, consumer sentiment, real estate market, etc. Monday is going to be a more rich day in terms of fundamentals even though there will be a bank holiday in Japan, as we will have existing home sales and FOMC Member Lockhart speech.
Steve Lucas, technical analyst at 3CANALYSIS, gives his perspective 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". Steve explains the forecast by mentioning that after the pair posted the 12.5-year high in June, there is now a negative signal in the form of a bearish reversal candle. "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 approaches triangle's apex
USD/JPY has fallen from the upper trend-line of the triangle the currency pair has been forming since the last days of August. Support is at 119.60, and a base scenario is a rebound from here up to 120.30. However, the overall bias is negative, and we should be prepared for a breakout from the pattern to the downside. This will confirm Dollar's intentions to visit a supposedly tough support level at 118.50.Daily chart
USD/JPY is already attempting to erode the lower boundary of the triangle, but there is still a good chance of a rally up to either the 200-hour SMA at 120.36 or to the falling resistance line at 120.90, unless the lower trend-line gives up.
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 58% of the market, up from 58% recorded yesterday. In the second case 56% of open positions are long, down from Thursday's level of 60%.
Spreads (avg, pip) / Trading volume / Volatility
78% of traders see the Dollar higher than 120 yen on Dec 17
The average Dukascopy website visitor expects the US Dollar to cost almost 2 yen more in three months' time. More than a fifth of survey participants (22%) 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 66% of the forecasts are above 121.50 and 78% of the given forecasts are set above the level of 120 yen.
According to the latest survey, a majority (54.5%) of the Dukascopy Community members prefers to be short the Dollar against the Yen this week.
However, one of the poll participants, aslamhammad, reckons that "technically, price is trying to recover back to the highs", and expects the exchange rate to increase by the end of the week. On the other hand, csan86 notes that "there is a huge double bottom on weekly and daily chart, so there is a high possibility for a breakout from the triangle pattern on the downside", in which case he expects "more bearish movement at least to the 116.150 area".