- The portion of orders to buy the US currency dropped from 56 to 44%
- Bears are outnumbering the bulls by only 2% points
- The 55, 100 and 200-day SMAs around 121.55 are the nearest support
- Immediate resistance is around 121.68, represented by the weekly PP
- 52% of the survey participants expect the US Dollar to cost less than 124.50 yen in three months
- Upcoming events today: US Building Permits, US Housing Starts, US Industrial Production, US Capacity Utilization Rate, US Crude Oil Inventories, FOMC Statement and Federal Funds Rate, Japanese Trade Balance
With the rising hype of the Fed rate hike today, the US Dollar managed to advance against most major peers on Tuesday. The largest gains were recorded versus the Aussie (0.70%), the Sterling (0.68%) and the Swissie (0.62%), followed also by significant gains of 0.58% and 0.54% against the Euro and the Yen, respectively. Nonetheless, the NZD/USD edged up 0.13%, while the Buck remained relatively unchanged against the Loonie, losing 0.01%.
Americans increased their spending in November, signalling enough momentum in the world's number one economy for the Fed to hike rates as soon as this week for the first time in almost a decade. According to the Commerce Department, retail sales excluding automobiles, gasoline, building materials and food services climbed 0.6% following an unrevised 0.2% growth in October. The core retail sales correspond most closely with the consumer spending component of GDP. Overall retail sales climbed 0.2% last month as automobile sales declined, while cheaper gasoline affected receipts at service stations. Auto sales fell 0.4% in November, the biggest decrease since June, after dropping 0.3% in October. At the same time, receipts at service stations declined 0.8% following a 1.0% slide in October.
A separate report showed, US producer prices for final demand climbed 0.3% in November, the biggest increase in five months. In the twelve month through November, wholesale dropped 1.1%, compared with a 1.6% decrease in October. Fed policy makers are expected to hike interest rates at their meeting this week for the first time in nearly a decade, resting on a much-improved labour market but without strong evidence inflation is firming.
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."
All focus on Fed rate hike decision
The Japanese Markit Manufacturing PMI slightly disappointed today, allowing the USD/JPY to edge higher. Nevertheless, the US fundamentals are the main exchange rate drivers today, such as the Building Permits, the Industrial Production. This data should boost the US currency, however, all these events are overshadowed by the Fed's interest rate decision today. The Fed is expected to hike interest rates today for the first time in the last ten years. This moment was in anticipation for the last year and is likely to cause great volatility in either direction, depending on the decision..
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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 rises in anticipation of the rate hike decision
The USD/JPY rebounded from its intraday low yesterday, after the inflation data sparked more hope of the Fed raising interest rates today. The immediate resistance cluster, however, managed to stop the rally at 121.65 and is now providing rather strong support. In case the Fed does not disappoint, the resistance around 122.40 is likely to give in and trigger a USD buying spree, which, in turn, could lead the Buck even towards the Nov high at 123.75. An unexpected delay of the rate hike is to cause a sharp sell-off, but without the violation of the three-year up-trend around the 119.00 major level.Daily chart
The USD/JPY managed to break through the one-week long down-trend, extending its rally in the early hours today. The pair now faces the 200-hour SMA and the 122.00 major level, which could provide some resistance today. However, the exchange rate is likely to jump significantly higher if the Fed decides to hike rates today.
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 slightly worsened for another day, namely from 64 to 63%; while the long and short positions at SAXO Bank now take up 59% and 41% 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, a half of traders 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 (18%) of the voters, whereas the second most popular choice is between 126.00 and 127.50 yen, chosen by only 12% of the surveyed. The mean forecast for Mar 16 is 123.13.
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.