- The number of buy orders inched 7% points up to 53%
- Today 73% of traders are holding long positions
- The weekly S1, up-trend, 20-day SMA and the monthly R1 are the nearest support around 122.15
- Immediate resistance is at 122.91, represented by the weekly PP
- 63% of the survey participants expect the US Dollar to cost more than 123 yen in three months
- Upcoming events today: US Markit Manufacturing PMI, US Existing Home Sales, Fed Announcement
The US Dollar appreciated against most major peers on Friday and over the weekend, with exception against the Aussie and the Yen. The largest gain was detected versus the Euro, 0.83%, followed by a 0.66% gain against the Pound, 0.53% versus the Swissie and 0.47% against the Loonie. The Buck lost 0.60% to the Aussie, while remaining relatively unchanged against the Yen (-0.05%) and the Kiwi (0.04%).
William Dudley, the head of the New York Fed said that the US central bank should soon be ready to hike interest rates as central bankers grow increasingly confident that low inflation will rebound and the employment remains resilient. Most policy makers consider a meeting on December 15-16 as a possible time for the first rate lift-off in nearly a decade. However, Dudley highlighted that the Fed remained data-dependent and the central bank still had time to decide on whether or not it should raise rates next month.
Meanwhile, the surge in the US Dollar convinced the Fed to refrain from hiking rates until at least December. The Greenback gained 1% versus the Australian Dollar and hit the highest level in seven months against the Euro. The US Dollar reached a 12-year high this month, according to the Fed's index that tracks the US currency versus the nation's key trading partners. The trade-weighted appreciation comes mostly versus major exporters including China and Europe. Currency appreciation is a headache for the Fed Chair Janet Yellen, as the US Dollar's strength reduces the cost of imports and makes it harder for prices to increase enough to reach the central bank's inflation target of 2%. Thus, it is expected that the rate-hike cycle could in fact be even more cautious than investors so far expect.
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".
Raig Erlam, senior currency analyst with OANDA, considers that more stimulus from the BOJ is "inevitable", but it is the timing that is yet uncertain. Erlam expects the central bank to hold off this week, but he thinks that "at some point towards the end of the year we may start to see the message being conveyed through to the market that stimulus is coming".
Concerning the GDP growth, the BMI Research 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 Existing Home Sales, Markit Manufacturing PMI and Fed Announcement
Due to there being a holiday in Japan, attention should be paid to US fundamentals, namely the Markit Manufacturing PMI and the Existing Home Sales. The Manufacturing Purchasing Managers Index (PMI) is released by the Markit Economics and captures business conditions in the manufacturing sector. As the manufacturing sector dominates a large part of total GDP, the manufacturing PMI is an important indicator of business conditions and the overall economic condition in the United States. According to the forecast the index is expected to deteriorate slightly, but mostly remaining unchanged; therefore having close to no impact on the market unless the figures surprise. The Existing Home Sales, however, should have a greater impact. The annualised number of residential buildings sold during the previous month is forecasted to be less than in the preceding month, hence, weighing on the US currency. But nonetheless, the most important even is the Fed Announcement, where information concerning the interest rate hike might be revealed.
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Raig Erlam, senior currency analyst at OANDA, reckons that this week's FOMC statement will be "the Fed's last opportunity to convince the market that rates are still on course to be raise this year". In case they exclude this message from the statement, then "they are not going to raise rates this year and we are probably looking more towards the middle of the next year".
USD/JPY acts on Japan's bank holiday
Although the USD/JPY edged lower at the end of last week, the loss was only nine pips big. The Greenback is expected to take advantage of the bank holiday in Japan, partially recovering from the previous week's losses. The immediate resistance is now represented by the weekly pivot point, while the up-trend remains the nearest support, now also bolstered by the 20-day SMA. Technical studies retain mixed signals, in spite of which, the US currency has a solid chance of retaking the 123.00 level and even reaching the second resistance if the fundamentals surprise with positive figures.Daily chart
The 200-hour SMA pushed the USD/JPY lower on Friday, forcing a breach of the up-trend. Nevertheless, despite the breach, the exchange rate returned above the trend-line and the 200-hour SMA, which are now providing support and should ensure the rally today.
Hourly chart
SWFX sentiment strongly bullish
OANDA and SAXO Bank are similar in the share of their long and short positions. The share of bulls in the market of the Canadian-based broker increased from 53 to 59%, while the long and short positions at SAXO Bank now take up 58% and 42% of the market, respectively.
Spreads (avg, pip) / Trading volume / Volatility
More than a half expect the rate to stay above 123 yen
Bullish forecasts for USD/JPY appear to be the more common than bearish ones. According to the survey conducted in October, 63% of the three-month estimates for the currency pair are above 123 yen. The most popular price interval turns out to be the 124.50-126.00 one, which was chosen in exactly a quarter (25%) of cases. However, the second most popular intervals, chosen by 12% of the surveyed, were 120.00-121.50 and 127.50-129.00. The mean forecast for Feb 23 is now 124.17.