- 53% of all pending orders are to buy the USD
- 70% of traders now have a negative outlook towards the US Dollar
- The 55, 100 and 200-day SMAs around 121.60 are the nearest resistance
- Immediate support is around 120.98, represented by the monthly S1
- 55% of the survey participants expect the US Dollar to cost more than 123.00 yen in three months
- Upcoming events today: US Final GDP, US Existing Home Sales
Revised US GDP and a lot worse-than-expected US Existing Home Sales data caused the Greenback to decline against most major peers yesterday. The US Dollar lost the most against two commodity currencies, namely the Kiwi (0.65%) and the Aussie (0.64%), while losing only 0.28% against third one, the Loonie. The USD/JPY dropped down the most, only 0.10%, whereas a rally of 0.39% was detected versus the British Pound, which in turn suffered from poor Public Sector Net Borrowing reading.
The US economy grew at a slightly slower pace than initially expected in the third quarter. The nation's gross domestic product rose at a 2.0% seasonally adjusted annual rate in the three months through September, according to the Commerce Department, compared with initially estimated 2.1%. Economists, however, had expected a 1.9% expansion. The data suggests 2015 is on track to close out another year of steady growth, supported by an improving job market, robust home sales and pockets of wage increases. Nevertheless, headwinds remain: despite low gasoline prices, consumer spending has been muted throughout the year. Weakness in overseas economies, a strong US Dollar and low oil prices have weighed on the manufacturing, mining and energy sectors, damping business investment and exports and resulting in thousands of layoffs.
The median projection from Fed officials as of December was for the world's number one economy to grow 2.1% this year and 2.4% in 2016. Consumer spending, the US economy's driver, rose at an unrevised 3.0% annual rate, contributing 2.04 percentage points to the quarter's 2.0% growth rate. Household spending on services increased at a 2.1% pace, with health care outlays alone accounting for 0.4 percentage points of the quarter's GDP growth.
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 Core Durable Goods Orders
Later today the Census Bureau is to release the Core Durable Goods Orders data, which is the cost of orders received by manufacturers for durable goods, which means goods planned to last for three years or more, excluding the transport sector. As those durable products often involve large investments they are sensitive to the US economic situation. This release is likely to have the most impact on the US Dollar, a negative impact, as a rather sharp slowdown in the orders' growth is forecasted. Furthermore, a number of data of secondary importance is also due today, which could provide additional impetus for the Greenback..
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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 takes another shot at falling under 121.00
Although the USD/JPY declined on Tuesday, the immediate support in face of the monthly S1 was able to hold the losses. The same level is providing support today as well, but the Bollinger band keeps edging closer to the Nov low, implying that weak fundamental data could push the exchange rate down to this area if not lower. However, the Buck was unsuccessful at piercing the monthly S1 through December; therefore, potential for the US currency to rebound still exists, but with a tough resistance located circa 121.60.Daily chart
The Buck continued to fall since Friday, with losses limited just under the 121.00 major level. Today the Greenback found additional support near that area, suggesting the up-trend might be intact, which began on Monday last week. However, if the USD/JPY manages to inch higher today, the down-trend above 122.00 is likely to trigger another sell-off and, eventually, a breach of the up-trend.
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 remains unchanged at 65%; while the long and short positions at SAXO Bank now take up 62% and 38% of the market, respectively.
Spreads (avg, pip) / Trading volume / Volatility
More than a half expect the rate to stay above 123 yen
According to the survey conducted between Nov 23 and Dec 23 this year, the US Dollar is expected to cost 122.76 yen in three months. However, the most popular price interval was the 124.50-126.00, voted for by slightly less than a fifth, namely 18% of the survey participants. The second choice was slightly lower, as only 16% of the voters chose the 123.00-124.50 interval. Meanwhile, the majority of 55% believe that the Greenback is to remain above 123.00 yen after a three month period.
Distribution between bullish and bearish votes improved considerably in favour of the former this week, as long votes reached 62%, which expect the American dollar to advance. The average prediction for December 25, however, is placed around the 121.2 level.
Gereltod, a member of the Dukascopy Community, believes that the USD/JPY may test the previous high of 125.50 later this month. "The pair continuously ascended since 2012 so its better to keep watch that support line since then," he added.
Meanwhile, agddivisas, another member of the Community said last week that there was "an extraordinary movement at this Friday with a range of 250 pips after BOJ decision." The trader also commented that he thinks this pair will continue falling, with the first target being the 1.2100 level.