- The number of sell orders increased from 60 to 66%
- Exactly three quarters (75%) of traders are short the US Dollar today
- The weekly 20-day SMA and the monthly PP at 122.36 are the nearest support
- Immediate resistance is around 122.78, represented by the weekly R1
- 59% of the survey participants expect the US Dollar to cost less than 124.50 yen in three months
- Upcoming events today: US Markit Services PMI, FOMC Member Lacker Speech
The US Dollar advanced against all major peers on Thursday, as the markets fully comprehended the Fed's statement on Wednesday. The largest gains were registered against the commodity currencies, due to falling oil prices. The Buck added 1.48% against the Aussie, 1.43% versus the Kiwi and 1.14% against the Loonie. The USD/JPY experienced the smallest gain, namely 0.29%.
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."
Quiet Friday
The only relevant event today is the Markit Services PMI from the US, but it is unlikely to impact the market significantly. Nevertheless, according to the forecast the PMI is expected to remain unchanged, therefore, the Buck is likely to experience a small boost after the release, but the impact of the BoJ's statement is unlikely to be negated. Furthermore, there are also no important events on Monday, while on Tuesday US Final GDP is to be the main driver..
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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 retests cluster around 121.60
The USD/JPY tested the weekly R1 resistance at 122.78, but stabilised slightly lower at 122.55 yesterday. The Buck jumped to a three-week high of 123.55 today, due to the markets misinterpreting the BoJ's policy statement. Once the situation was reassessed, the pair retreated from the daily high and continued its way into the red zone. The Greenback remains supported by the strong cluster around 121.60, which is likely to limit the losses; however, volatility could stretch even further below. The bullish momentum might also be regained, but with the 123.00 level intact.Daily chart
The USD/JPY appreciated sufficiently to test the down-trend yesterday, but the BoJ's statement today caused the breakout to the upside. Nevertheless, the pair returned under the down-trend and is likely to extend below the 200-hour SMA. Due to this breakout the trend-line requires extra confirmation to become viable.
Hourly chart
Bears dominate the market
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 declined today, namely from 64 to 62%; while the long and short positions at SAXO Bank now take up 52% and 48% 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 (59%) 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 (17%) of the voters, whereas the second most popular choice is divided between two price intervals, namely 117.00-118.50 and 123.00-124.50 yen, all three chosen by only 13% of the surveyed. The mean forecast for Mar 18 is 122.84.
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.