- The number of buy orders increased from 59 to 62%
- 39% of traders hold long positions
- The weekly PP at 120.57 remains the nearest resistance
- Immediate support is around 119.60, represented by the weekly S1 and the Bollinger band
- 56% of the survey participants expect the US Dollar to cost more than 123.00 yen in three months
- Upcoming events today: US Goods Trade Balance, US CB Consumer Confidence
The Greenback experienced mixed performance at the beginning of the week, as it appreciated against some major peers, but declined against the others. The Buck gained 0.59% against the Loonie and 0.42% versus the Aussie, however, declined 0.28% versus the third commodity currency, namely the Kiwi. Another significant loss of 0.28% was registered against the Sterling, while the US currency remained relatively unchanged versus the Euro (-0.09%) and the Yen (0.06%). The USD/CHF remained completely unchanged on Monday as well.
Japan's retail sales declined 1.0% in November from October, marking the first drop in two months, reflecting weak sales of winter clothing due to relatively warm weather and a decrease in fuel sales due to lower gasoline prices. Economists, however, had predicted a 0.6% decrease. A separate data showed household spending suffered the biggest annual decline in eight months, falling 2.9% in November from a year earlier. The BOJ has signalled readiness to expand stimulus if risks threaten Japan's recovery prospects. While weak emerging market demand dims the export outlook, analysts expect output to gradually increase early in 2016 as automakers increase production of new models. Manufacturers surveyed by the trade ministry expect to ramp up production by 0.9% in December and raise it by 6.0% in January.
Meanwhile, the Bank of Japan expects the 2020 Tokyo Olympic Games to boost the world's third biggest economy by 0.2-0.2 of a percentage point on average each year until 2018, offsetting some of the pain from another sales tax increase planned in 2017. Investment on new hotels, venues and infrastructure related to the games and spending by tourists will boost Japan's gross domestic product by up to 30 trillion yen during 2015 to 2020, or roughly 6% the size of the economy.
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 Goods Trade Balance and CB Consumer Confidence
The only relevant economic data releases today are the US Goods Trade Balance and US CB Consumer Confidence. The US Goods Trade Balance shows the difference in value between exported and imported goods; it also provides insight in the total Trade Balance data, as trade in goods makes approximately 75% of total trade. The second event, the CB Consumer Confidence is released by the Conference Board and captures the level of confidence that individuals have in economic activity. A high level of consumer confidence stimulates economic expansion while a low level drives to economic downturn. According to the forecast, the CB Consumer Confidence is expected to grow, thus, strengthening the US Dollar..
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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 in limbo ahead of Trade Balance
The US Dollar managed to edge higher against the Yen on Monday, with the immediate resistance in face of the weekly PP somewhat limiting the volatility and causing the pair to close only at 120.40. Another decline today is unlikely, as technical indicators shifted from bearish to neutral; however, the nearest support rests only around 119.60, rather far from the spot price, compared to the closest resistance at 120.57, still represented by the weekly PP. Disappointment in US fundamentals, along with the resistance level, could trigger the possible sell-off today.Daily chart
Due to lack of impetus on Monday, the USD/JPY mostly remained unchanged, slightly edging to the upside. Trade appears to hold above the Nov low of 120.25, while the 200-hour SMA, a potential resistance, keeps moving closer to the spot price. Today's fundamentals might push the pair towards this SMA, but a breach of it is unlikely just yet.
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 increased today, with 66% of their traders holding long positions (previously 68%); while the long and short positions at SAXO Bank now take up 66% and 34% 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 29 and Dec 29 this year, the US Dollar is expected to cost 122.45 yen in three months. However, the most popular price interval is the 123.00-124.one, voted for by exactly a fifth, namely 20% of the survey participants. The second choice was higher, as 15% of the voters chose the 124.50-126.00 interval. Meanwhile, the majority of 56% believe that the Greenback is to remain above 123.00 yen after a three month period.