- The share of orders to sell the Greenback edged up 4% points up to 60%
- Market sentiment remains bearish at 51%
- The weekly PP, 55, 100 and 200-day SMAs around 121.55 are the nearest support
- Immediate resistance is around 122.40, represented by the monthly PP and the 20-day SMA
- 54% of the survey participants expect the US Dollar to cost less than 124.50 yen in three months
- Upcoming events today: Philly Fed Manufacturing Index, US Jobless Claims, US Current Account
The US currency advanced against most major peers after the Fed finally hiked interest rates, but gains were limited due to no positive or negative surprises from the Fed's chair. The Greenback gained the most against the Yen, namely 0.44%, while also adding 0.34% against the Loonie, 0.24% against the Sterling and 0.17% versus the Euro. The Buck, however, suffered against two commodity currencies: 0.58% against the Aussie and the 0.49% versus the Kiwi. The USD/CHF, on the other hand, remained relatively unchanged, losing only 0.13%.
After seven years of maintaining the federal funds rate near zero, the Fed announced its first rate hike in almost a decade, signalling its growing confidence in the world's number one economy. The Fed raised its target for the federal funds rate, the rate at which banks lend money to one another, from 0% to 0.25%. The modest increase is unlikely to have a significant impact on the American economy. Yet, the move is extremely important, as it is widely seen as the first step in a longer sequence of rate hikes over the next couple of years. By the end of next year, the US central bank expects the benchmark interest rate to climb to a median 1.375%, which implies four more 25 basis points increases over the coming 12 months. In 2017, officials are aiming to bring the policy rate up to 2.375%, which will take another four hikes.
The Fed noted the world's biggest economy is growing solidly and should pick up its pace to a respectable 2.4%. Nonetheless, prominent economists argue that the US economy is still vulnerable to slower global growth and criticized the Fed's decision, particularly as there was no compelling reason like increasing inflation and a tight jobs market to justify it. However, the Fed's support for the decision was unanimous. Policy makers noted considerable improvement in the labour market and said they were "reasonably confident" in inflation climbing over the medium term to its 2% target.
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."
Philly Fed Manufacturing Index
With no significant economic data releases from Japan scheduled for today, all focus shifts again to the US fundamental data. From the US side the Jobless Claims are due, although improvements are expected, they tend to have almost no impact on the markets, despite being an important piece of data. As a result, more focus should be on the Philadelphia Fed Manufacturing index, which is a spread index of manufacturing conditions (movements of manufacturing) within the Federal Reserve Bank of Philadelphia. This survey, served as an indicator of manufacturing sector trends, is interrelated with the ISM manufacturing Index (Institute for Supply Management) and the index of industrial production. It is also used as a forecast of the ISM Index. According to the forecast, the index is likely to show a worsened result and, thus, should contribute to the Cable's rebound..
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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 awaits for fundamental data for guidance
A group of SMAs helped the US Dollar extend its gains and retake the 122.00 major level, with volatility limited by the monthly PP and 20-day SMA circa 122.40. This group of levels keeps providing immediate resistance today, a breach of which is likely to lead to a surge up to 122.78, namely the weekly R1. Alternatively, the USD/JPY currency pair risks erasing yesterday's gains if the fundamentals cause the pair the retreat towards the strong cluster of supports around 121.65. Technical studies, however, retain mixed signals, suggesting the immediate resistance might remain intact.Daily chart
Even though the USD/JPY appears to have regained the bullish moment and even pierced the 200-hour SMA yesterday, the pair now faces another possible down-trend around 122.75. This possible down-trend requires extra confirmation, but it could still cause the Buck to bounce back. A breach is likely to extend the rally up to Nov high at 123.75.
Hourly chart
SWFX sentiment edging closer to equilibrium
OANDA and SAXO Bank are similar in the share of their long and short positions. The portion of bulls in the market of the Canadian-based broker returned to its Tuesday's level, namely from 63 to 64%; while the long and short positions at SAXO Bank now take up 55% and 45% of the market, respectively.
Spreads (avg, pip) / Trading volume / Volatility
More than a half expect the rate to stay above 123 yen
The majority of forecasts appear to be centered around the 124.50 price level. However, more than a half of traders (54%) believe the US Dollar will cost less after a three month period. The most popular price interval is 124.50-126.00, selected by slightly less than a fifth (16%) of the voters, whereas the second most popular choice is divided between three price intervals, namely 117.00-118.50, 123.00-124.50 and 126.00 and 127.50 yen, all three chosen by only 12% of the surveyed. The mean forecast for Mar 17 is 123.11.
This week's overall sentiment for the USD/JPY pair changed back to distribution seen two weeks before, as 62.5% of all traders are now supporting the bearish case for the pair. Slightly more than 25% of traders expect the pair to close above the 121 level towards the end of present working week.
One of the members of the Dukascopy Community, Jpaeas, believes the US Dollar is to end the week in the green zone against the Japanese Yen. "On the Daily Chart there is a downside movement but I believe there will be a sight retracement as the 1hr Chart already shows a bullish movement occurring," the trader commented.
At the same time, another Community member Chieme said that "on December 7 price rose to 123.145 and went down to 121.064 on December 9." He suggested that "the price will make a second downward move to 119.780 on upcoming Friday" and, therefore, is bearish on the USD/JPY.