- 51% of orders to sell the Buck
- There are 70% of traders being long the US Dollar
- The 20-day SMA and the monthly PP represent resistance around 119.90
- Support is around 119.23 (weekly PP)
- The average three-month forecast stands at 120.43
- Upcoming events today: FOMC Member Brainard Speech, US NAHB Housing Market Index, US Building Permits, US Housing Starts
The US Dollar appreciated against most major peers on Friday and over the weekend, amid strong Preliminary UoM Consumer Sentiment figures. The Greenback gained 0.89% against the Aussie, which suffered from the RBA's Financial Stability Review. The USD/CAD added only 0.39%, as the strong Canadian Manufacturing Sales numbers limited the Buck's upside potential. The Sterling held most resilient against the US currency, allowing the Cable to fall only 0.12%.
US consumer sentiment bounced back strongly in October despite headwinds from a strong US Dollar and sluggish demand that weighed on the industrial sector, particularly manufacturing. The University of Michigan said its consumer sentiment index surged to 92.1 in the reported month from 87.2 in September, whereas economists had expected a modest upturn to 89.0. The survey's current conditions sub-index jumped to 106.7 this month from 101.2 in September. Six months out from now, the forecast was 82.7, which was up from the month prior's 78.2, according to the survey's index of expectations. Meanwhile, expectations by Americans for the inflation rate dropped from an expected 2.7% within the upcoming year to 2.8% in September.
In a separate report, the Fed said industrial output declined 0.2% on renewed weakness in oil and gas drilling after sliding 0.1% in August. Industrial production rose at an annual rate of 1.8% in the third quarter. At the same time employers offered 5.37 million vacant positions in August, compared with the market consensus for the 5.58 million job openings, the Labor Department reported. The preceding month's figure was revised to 5.67 million from 5.75 million reported initially.
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 NAHB Housing Market Index
Monday is a quiet day in terms of economic events. The only upcoming data release worth mentioning is the US NAHB Housing Market Index. It presents home sales and expected home buildings in the future indicating housing market trend in the United States. The growth rate of the housing market affects the USD volatility. Although the changes are expected, a worse or better-than-expected figure is likely to push the given pair accordingly.
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 resumes journey to ten-month support
As was anticipated, improvements in the US fundamentals on Friday caused the USD/JPY to overperform and breach the 119.20 resistance. The pair reached the set target of 119.70, but failed to remain that high, falling back and settling at 119.40. The Greenback is likely to undergo a correction today, with the nearest support now located at 119.23 in face of the weekly PP. However, the Buck remains quite volatile and could still surprise to the upside, while technical studies are mostly supporting the bearish outcome.Daily chart
Even though the USD/JPY prolonged its gains on Friday, volatility was still limited by the 200-hour SMA. The given SMA keeps providing resistance today as well, increasing the chances of the USD/JPY bouncing back and closing lower.
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 63% of the market (65% previously). In the second case 69% of open positions are long, down from 66% on Friday.
Spreads (avg, pip) / Trading volume / Volatility
The average three-month forecast stands at 120.43
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 14% of the survey participants. Meanwhile, the mean forecast for January 19 is 120.43, while 44% of the surveyed still assume the Dollar could cost less than 120 yen in three months.