- The number of purchase orders declined 13 percentage points to 44%
- 68% of all positions are now long, compared to 61% yesterday
- 20-day SMA and weekly PP represent resistance around 120.20
- Support is around 119.30 (weekly S1 and the Bollinger band)
- 67% of traders see the Dollar higher than 120 yen on Dec 30
- Upcoming events today: US ADP Non-Farm Employment Change, US Chicago PMI, US Crude Oil Inventories, Fed Chair Yellen Speech, Japanese Tankan Manufacturing and Non-Manufacturing Indexes
The US Dollar experienced mixed performance on Tuesday, as it appreciated against some major peers and declined against the others. Gains of 0.19%, 0.14% and 0.08% were detected versus the Loonie, the Sterling and the Aussie, respectively, while the Greenback also declined 0.27% against the Kiwi, 0.20% against the Swissie and 0.15% versus the Yen. Furthermore, the EUR/USD remained relatively unchanged, climbing up 0.05%.
Household spending in the US rose at a healthy rate in August, while personal growth slowed after a jump in July. According to the Commerce Department, consumer spending increased 0.4% on a monthly basis in the reported month after an upwardly revised 0.4% rise in July, beating the estimate of a 0.3% gain. In both months the spending increases were led by strong gains in spending on durable goods including cars. Meanwhile, personal income was up 0.3% in August, helped by another solid increase in wages and salaries, however the reading missed a 0.4% growth forecast. The result followed a 0.5% income gain in July, which was the best reading in eight months. The solid spending and income data reinforced the signs of strength in America's domestic economy that could lead to the Fed tightening interest rates despite the slowdown in emerging markets.
Meanwhile, President of the Federal Reserve Bank of Chicago Charles Evans, while speaking at Marquette University in Milwaukee, noted that the best time for a lift-off of interest rates from near-zero level can be the middle of next year. He added that low rates should help the economy to sustain growth and normalise inflation. Evans is the FOMC voting member in 2015.
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."
US ADP Non-Farm Employment Change
From the US side the only relevant data release to influence the USD/JPY today is the US ADP Non-Farm Employment Change. This is the early look at the employment growth in the US, ahead of the Friday's release. The number of employed people in the previous month is expected to slightly rise and should be the concluding event to drive the exchange rate today among the data releases. Later this day the Fed's Chair is scheduled to speak at 19:00 PM GMT and provide more insight concerning the Fed's most likely upcoming interest rate hike. Ultimately, the Bank of Japan is to release the Tankan Manufacturing and Non-Manufacturing Indexes, both of which are anticipated to worsen, however, their impact on the USD/JPY might be insufficient to turn around the bearish effect of Yellen's speech if such occurs.
Marcel Thieliant, economist from Capital Economics, forecasts USD/JPY to be at 130.00 by the end of the second quarter. The analyst commented that he expects the BoJ to step up the pace of easing at the end of this month. "This is obviously not what other economists expect, if that happens, we will probably see a strong drop in the Yen against the Dollar and against other major currencies," Thieliant said.
Steve Lucas, technical analyst at 3CANALYSIS, gives their perspectives 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", he said. Steve explained their view by mentioning that since the pair posted the 12.5 year high in June, last week put in a bearish reversal candle, which is a negative signal. "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 glued to 120.00
The USD/JPY tested both the immediate resistance and the support, but ultimately suffered a slight decline of 20 pips. The situation today remains similar to yesterday, namely a fall is expected. The 20-day SMA and the weekly PP keep providing resistance around 120.20, while the weekly S1 and the Bollinger band support the pair from below around 119.30. However, according to the technical studies, the Greenback is supposed to weaken against the Yen today, despite the pair's efforts to climb during the Asian session.Daily chart
The USD/JPY pair refused to drop below last week's low, but failed to post gains. Nevertheless, the Buck is seen rising higher today, making attempts to stabilise above the 120.00 major level. However, the 200-hour SMA is providing resistance and only if it is certainly breached, the pair could close trade above 120.00.
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 65% of the market (64% previously). In the second case 60% of open positions are long, up from Tuesday's level of 58%.
Spreads (avg, pip) / Trading volume / Volatility
67% of traders see the Dollar higher than 120 yen on Dec 30
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 60% of the forecasts are above 121.50 and 67% of the given forecasts are set above the level of 120 yen.
This week overall sentiment remained negative, as slightly more than 45% of traders expect the pair to close below the 120.00 level in the end of the present working week, while the average expectation stays just below this level.
Nuonrg, one of the participants of the weekly Community forecasts, believes that "after forming a bearish flag, still the long uptrend is in place as a bull flag." Nuonrg suggests that in order to prove the upside, the pair has to break the 121.00. "Last candles seem choppy range, but today seems firm up. Therefore, I am in favour of a long-run," the trader added. Joining the bears this week, rokasltu, another member of the Dukascopy Community, expects the USD/JPY to fall deeper down. "I think even NFP data will not influence rate much as it resides near mark which satisfies both buyers and sellers," rokasltu commented on the matter.