- Sell orders are now outnumber the buy ones by 4% points
- 61% of traders are short the US Dollar
- The weekly PP at 118.30 is the nearest resistance
- Immediate support is around 117.65, represented by the monthly S2 and the up-trend
- 57% of the survey participants expect the US Dollar to cost less than 120.00 yen in three months
- Upcoming events today: US Jobless Claims, US Import Prices, FOMC Member Bullard Speech
The US Dollar's performance on Wednesday was rather formidable, as it appreciated against most major peers, with exception versus the Euro. The Greenback advanced the most versus the Loonie (0.55%), followed by a 0.45% rally versus the Aussie, 0.39% against the Swissie and 0.35% against the Kiwi. At the same time, the Cable edged only 0.29% higher, while the USD/JPY remained relatively unchanged, climbing up only 0.03%. The US Dollar, however, slid 0.17% against the European currency.
The US labour market continued to tighten as job openings rose, while the quits rate remained steady, supporting the Fed on the path to normalizing monetary policy. US companies are struggling to fill a higher number of job vacancies than in much of the past 12 years. Many workers hesitate to quit their job, signalling Americans remained concerned about employment prospects even with 5% jobless rate.
The number of vacant positions climbed to 5.43 million in November following a downwardly revised 5.35 million openings a month earlier, according to the Labor Department. The number of openings increased from 4.89 million a year ago, after having reached a record-high of 5.67 million in summer. The JOLT report followed a series of other labour market indicators, which pointed to some improvement in the market. Last week, the monthly jobs report showed almost 300,000 jobs were created in December. Furthermore, the report showed companies hired a total 5.2 million workers in November, compared with 5.17 million a month earlier. The hires rate held at 3.6%, where it has been steady since hitting the high of the current business cycle at 3.7% in June. Meanwhile, the quits rate was steady at 2% in November, shy of its pre-recession peak of 2.3% reached in November 2006, when almost 3.1 million quits were registered.
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 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 Jobless Claims and Import Price Index
The first important event is the US Initial Jobless Claims. The Jobless Claims are released by the US Department of Labor. They measure the number of people filing first-time claims for state unemployment insurance. In other words, it provides a measure of strength in the labor market. A larger than expected number indicates weakness in this market which influences the strength and direction of the US economy. Despite improvements expected in the labor market today, the specific data release tends to have a mild reaction on the markets. The second event to pay attention to is the US Import Prices. The Import Price Index is released by the US Department of Labor and informs the changes in the price of imported products into the US. The higher the cost of imported goods, the stronger the effect they will have on inflation, redunding in a higher probability of a rate rise. According to the forecast, the Import Price Index could weigh on the US Dollar and cause the breach of the up-trend.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 on the verge of breaking the up-trend completely
Even though the USD/JPY currency pair remained relatively unchanged on Wednesday, its four-pip rally still confirmed the up-trend. The outlook, therefore, remains unchanged, as the Buck should follow the trend and appreciate against the Yen again today. The up-trend is also supported by the monthly S2, creating a cluster around 117.65, while the closest resistance is represented by the weekly PP at 118.30. However, risks of edging lower persist, as technical studies retain their bearish signals; along with weak fundamentals, price could be pushed down to 117.20 or even lower.Daily chart
On Wednesday the bullish trend was reversed, as the USD/JPY pierced through the trend-line and extended losses beyond 117.50. Even though earlier today attempts to rebound again were made, the 200-hour SMA keeps edging closer, providing resistance. Only positive US fundamentals are likely to help the Greenback climb over the 118.25 level and put the 200-hour SMA behind.
Hourly chart
Bears dominate the market
Other market participants, such as OANDA and SAXO Group, have a completely different sentiment, as the majority of their traders hold long positions. Among SAXO Bank 60% of traders are long the US Dollar, whereas 62% of all positions at OANDA are also long (previously 66%).
Spreads (avg, pip) / Trading volume / Volatility
More than a half expect the exchange rate to fall under 123 yen
The largest half of the survey participants (57%) expect the US Dollar to cost less than 120.00 yen in three months. The most popular choice is the 114.00-115.50 price interval, selected by 36% of the voters; however, according to the votes collected between Dec 14 and Jan 14, the mean forecast for Apr 14 is 119.15. At the same time, 14% of the surveyed believe the Greenback could fall in the 123.00-124.50 price interval after a three month period.
Compared to the previous week, the bullish sentiment significantly weakened, as now only 55% of traders expect the pair to rise, comparing to the previous 85% of bullish votes. As a result, the average median for the pair for the end of this week decreased to 117.9.
Rokasltu, a trader with the Duksacopy Community, said that at the beginning of the year the USD/JPY went down quite substantially. "I think, the USD/JPY pair has a potential to regain moderately during this week," he added.
Meanwhile, another member of the Community suggested that the Buck is to weaken versus the Japanese Yen by the end of the week. "I believe, the Dollar should weaken against the Yen, reaching the 115 level in the short term," STARLINE backed his view.