- The gap between the buy and the sell is four percentage points
- Market sentiment remains bullish at 73%
- The Bollinger band and the weekly S1 represent resistance around 119.10
- Support is around 118.65 (weekly S3 and monthly S1)
- The average three-month forecast stands at 120.60
- Upcoming events today: US Capacity Utilization Rate, IUS Industrial Production, US Preliminary UoM Consumer Sentiment and Inflation Expectations, US JOLTS Job Openings
The Greenback experienced mixed performance, amid mixed fundamental data results yesterday. Losses of 0.92%, 0.56% and 0.38% were recorded versus the commodity currencies, the Kiwi, the Loonie and the Aussie, respectively. On the other hand, the Buck gained 0.78% against the Euro, while remaining relatively unchanged against the Sterling (0.12%), the Swissie (0.09%) and the Yen (0.06%).
The US annual inflation dropped the most in eight months in September, weighed down by cheap fuel, according to data released by the Bureau for Labor Statistics. The consumer price index declined 0.2% last month after sliding 0.1% in August. In the 12 months through September, consumer inflation was unchanged for the first time in four months after climbing 0.2% in August. However, the core annual CPI edged up 1.9%, the largest rise since July 2014, after increasing 1.8% in August. Low inflation, which has persistently run below the Fed's 2% target, is a major hurdle to an interest rate hike this year.
At the same time, the number of Americans applying for new applications for jobless benefits fell back to the lowest level in 42 years last week, suggesting the labour market remained strong despite a steep slowdown in job growth in the past two months. Initial claims for state unemployment benefits declined 7,000 to a seasonally adjusted 255,000 for the week ended October 10, the Labor Department reported. Claims were last at this level in July, which was the lowest since November 1973. It was the 32nd consecutive week that claims remained below the 300,000 threshold, which is normally associated with an improving labour market.
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."
Preliminary UoM Consumer Sentiment
With the BoJ Governor's statement weakening the Yen today, all focus now shifts to the US fundamentals. The most significant even is the Preliminary UoM Consumer Sentiment, which is released by the University of Michigan. It is a survey of personal consumer confidence in economic activity and shows a picture of whether or not consumers are willing to spend money. The given index is expected to improve, as well as the Industrial Production and JOLTS Job Openings; thus, strengthening the US currency. However, the Capacity Utilization Rate is forecasted to worsen. If any other data release disappoints today, the Greenback could sustain losses against other major currencies.
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 to increase Thursday's bullish momentum
The ten-month support at 118.50 was tested yesterday, forcing the USD/JPY to recover from harsh downside volatility. However, the pair remained relatively unchanged over the day, as the Philly Fed Manufacturing Index weighed on the US currency, curbing its rally. The same resistance that held the Greenback yesterday, namely the Bollinger band and the weekly S2, is expected to limit the gains today as well. The upper target lies at 119.20, but a breakout towards 119.70 is possible if the fundamentals positively surprise.Daily chart
The USD/JPY extended its decline after breaching the up-trend on Tuesday, but managed to rebound, as the 118.50 level provided some support. However, the pair appears to be pinned to the 119.10 level, unable to break away in either direction. The 200-hour SMA is now also bolstering the possible rally's ceiling at 119.70.
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 (66% previously). In the second case 66% of open positions are long, down from 69% on Thursday.
Spreads (avg, pip) / Trading volume / Volatility
The average three-month forecast stands at 120.60
The 121.50-123.00 price interval remains the most popular choice, selected by a slightly less than a fifth (18%) of all voters. The second most popular choice is the 114.00-115.50 price range, voted for by 15% of the survey participants. Meanwhile, the mean forecast for January 16 is 120.60, while 44% of the surveyed still assume the Dollar could cost less than 120 yen in three months.
Traders' verdict concerning the USD/JPY performance is rather positive, as 56% of them expect the Buck to climb higher versus the Japanese currency by the end of the week.
One of the members of the Dukascopy Community, PPanM, expects the Greenback to edge higher versus the Yen by the end of the week. He explain his view with the following comment: "the USD/JPY market is going to continue to be choppy and moving sideways. I do think this pair goes higher given enough time and break above the 121." Nuonrg, another survey participant, believes that the pressure is on the USD/JPY, as the pair has been channelling on 4H chart since September 8. "October, perhaps, has the possibility to make this pair break the range and move out of it. The price is moving lower on the daily chart, so I prefer a move lower before we might see some bounce or move higher as the weekly uptrend is still in place. This week ends at the 120.200 level, perhaps, it moves into 120.80 but then lower", nuonrg explained.