- The portion of commands to acquire the Buck dropped from 60 to 58%
- Market sentiment remains bullish at 70%
- Weekly R1, Bollinger band and 200-day SMA represent resistance around 120.80
- Support is around 120.22 (20-day SMA)
- 59% of traders see the Dollar higher than 120 yen on Jan 6
- Upcoming events today: US Trade Balance, FOMC Member Williams Speech
The US Dollar declined against commodity currencies, while managing to appreciate against other major peers on risk appetite. The Greenback lost 0.72% versus the Kiwi, 0.50% against the Loonie and 0.49% against the Aussie, as these three currencies were boosted by rising oil prices. Gains, however, were registered against the Yen (046%), the Swissie (0.42%), while adding 0.21% versus both the Euro and the Sterling.
The US services sector, which accounts for more than 79% of the nation's private-sector GDP, expanded at a slower pace in September than expected, as new orders and business activity faltered, indicating that the sector might not be immune to turmoil abroad. The Institute for Supply Management's non-manufacturing purchasing managers index dropped to 56.9 in the reported month from 59 in August and 60.3 in July. The July figure was the highest level on records dated back to January 2008. The business activity sub-index slid to the lowest level in four months of 60.2, while the new orders component showed a more pronounced decline, plunging by 6.7 points to 56.7. In contrast, the employment measure rose by 2.3 points to 58.3. The gauge recorded the highest level in the third quarter of 2015 since records began in 1997, averaging 58.0.
At the same time, the financial firm Markit reported that its final reading of PMI for the services sector slid to 55.1 in September, compared with August's final 56.1. The US economy was expected to slow down to around 2.2% in the third quarter according to PMI surveys. Moreover, it remained unclear whether growth would slow further in the final three-month period of the year.
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 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 Trade Balance
The only relevant event to influence the USD/JPY currency pair is the US Trade Balance. The Trade Balance released by the Bureau of Economic Analysis and the U.S. Census Bureau is a balance between exports and imports of total goods and services. A positive value shows trade surplus, while a negative value shows trade deficit. It is an event that generates some volatility for the USD. If a steady demand in exchange for US exports is seen, that would turn into a positive growth in the trade balance, and that should be positive for the USD. However, the deficit is forecasted to increase, thus, pressuring the US Dollar. No significant data releases from Japan are due today.
Marcel Thieliant, economist from Capital Economics, forecasts USD/JPY to be at 130.00 by the end of the second quarter. The analyst commented that he expects the BoJ to step up the pace of easing at the end of this month. "This is obviously not what other economists expect, if that happens, we will probably see a strong drop in the Yen against the Dollar and against other major currencies," Thieliant said.
Steve Lucas, technical analyst at 3CANALYSIS, gives their perspectives on the USD/JPY currency pair. "We have persistently been bullish of USD/JPY, but in the very short-term we think there will be a pullback", he said. Steve explained their view by mentioning that since the pair posted the 12.5 year high in June, last week put in a bearish reversal candle, which is a negative signal. "We also think that the deception out there is that the Fed is going to be a little easier on raising interest rates and people are going to be a bit cautious and a bit sensible and take the money off the table", the analyst added.
USD/JPY retests 120.63 fifth week in a row
Despite trading limbo through most of the day, the US Dollar managed to climb almost 50 pips against the Japanese Yen on Monday. The Greenback should strengthen for the second day, but a potential resistance level, which kept the given pair from edging higher for almost five weeks now, lies on the way around 120.63. Furthermore, the resistance cluster around 120.80 could also play its part and even force the Buck to retreat to the 120.00 major level, also reinforced by the monthly PP.Daily chart
The USD/JPY appears to be glued to the 200-hour SMA on the hourly chart, as the exchange rate refuses to leave the SMA for long. Consequently, after yesterday's rally, the US Dollar is likely to drop today in order to edge closer to the 200-hour SMA and, perhaps, even pierce it to the downside again, returning to or under the 120.00 major level.
Hourly chart
Bulls preserve majority
OANDA and SAXO Bank also report minor preponderance of bullish market participants. In the first case the longs take up 54% of the market (60% previously). In the second case 55% of open positions are long, down from 69% on Monday.
Spreads (avg, pip) / Trading volume / Volatility
59% of traders see the Dollar higher than 120 yen on Jan 6
The average Dukascopy website visitor expects the US Dollar to cost almost 2 yen more in three months' time. Almost a one fifth of survey participants (19%) estimates that the Greenback will be worth between 121.50 and 123 yen by mid-January. At the same time, it is worth mentioning that 56% of the forecasts are above 121.50 and 59% of the given forecasts are set above the level of 120 yen.