- Purchase orders surged from 52 to 59%
- 60% of all open positions are short
- The weekly S3 at 119.29 is the nearest resistance
- Immediate support is around 118.90, represented by the monthly S1 and the Bollinger band
- 54% of the survey participants expect the US Dollar to cost less than 123.00 yen in three months
- Upcoming events today: US ADP Non-Farm Employment Change, US Trade Balance, US ISM Non-Manufacturing PMI, US Factory Orders, FOMC Meeting Minutes
The US Dollar was able to advance against all major peers, with exception against the Japanese Yen on Tuesday. The Greenback added the most versus the Euro, namely 0.78%, followed by 0.70% and 0.66% gains against the Kiwi and the Swissie, respectively. The Buck gained the least versus the Sterling, only 0.29%, whereas the Yen was able to drop to a 12-week low due to its safe haven status, with the USD/JPY edging 0.32% lower.
US manufacturing sector lost some steam in December, as both Markit's and the Institute for Supply Management reported a decline in business activity. According to the ISM, manufacturing PMI came in at 48.2 last month, down from 48.6 in November, whereas economists had predicted the gauge to rise to 49.0. At the same time, the final PMI reading from Markit dropped to 51.2 during the last month of 2015, down from 52.8 in November. Manufacturers continue to struggle with a strong US Dollar, slowdown in China, as well as volatile stock market.
Meanwhile, Fed Vice Chairman Stanley Fischer said the Fed's tool kit proved to be successful in raising the benchmark federal-funds rate after the December decision to hike rates from zero. Fischer highlighted that officials are ready to consider changes should problems arise. The US central bank in mid-December decided to raise the fed-funds rate to a range of 0.25% to 0.50% after keeping it near zero for seven years. There were some concerns about Fed's ability to hike rates, but the fed-funds rate moved into its new range the day following the Fed's decision. Fed policy makers project that they will further raise the target range by a full percentage point over the course of the year, to 1.25%-1.5%.
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."
FOMC Meeting Minutes and ADP Non-Farm Employment Change
Concerning the US economy, attention should be paid to the US Trade Balance, the Employment Change figures, as well as the Services PMI, and of course – the FOMC Meeting Minutes. The most important event is the ADP Non-Farm Employment Change, it is released by the Automatic Data Processing, Inc. This Employment Change is a measure of the change in the number of employed people in the US. Generally speaking, a rise in this indicator has positive implications for consumer spending, stimulating economic growth. The second event is the US Trade Balance, which is released by the Bureau of Economic Analysis and the U.S. Census Bureau. It 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. These two economic data releases are forecasted to have mixed results, but, nonetheless, the FOMC Meeting Minutes is the most anticipated event. Information concerning the monetary policy in 2016 is to be provided, as well as another Fed rate hike might occur as early as today. No fundamental data releases concerning the Japanese economy are scheduled for today.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 keeps moving to three-month low
The USD/JPY currency pair failed to rebound on Tuesday, due to the continued sell-off in the Chinese equity market. In wake of this event, the pair inched closer to the 119.00 level, which is likely to be breached today, as another set of weak Chinese fundamentals sparked risk aversion. The immediate support around 118.90 will doubtfully hold the losses, leaving the door open for a decline towards the Oct low at 118.06. Nonetheless, a positive surprise in US data later today could trigger a buying spree, help the Greenback negate daily losses and even cause trade to close in the green zone.Daily chart
The US Dollar extended its decline against the Yen, with risk aversion dominating in the market. Today's performance, however, is largely dependent on the fundamental data results, with the 200-hour SMA edging closer to the 120.00 major level and providing resistance at that point.
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, as 66% of their traders hold long positions; meanwhile, the long and short positions at SAXO Bank now take up 61% and 39% of the market, respectively.
Spreads (avg, pip) / Trading volume / Volatility
More than a half expect the exchange rate to fall under 123 yen
According to the survey conducted between Dec 06 and Jan 06, the US Dollar is expected to cost 120.51 yen in three months. However, according to the most popular price interval, the US Dollar is likely to cost 115.50 yen or less after three months; this price interval was selected by 35% of the voters. The second choice was higher, as 18% of the voters chose the 123.00-124.50 interval. Meanwhile, the majority of 54% believe that the Greenback is to fall below 123.00 yen after a three month period.
This week sentiment among Dukascopy traders has absolutely changed, as now 85% of traders predict the Yen to gain in value. Alongside, the average forecast for the end of the week is placed around the 121.1 level.
The US Dollar is to outperform the Japanese Yen, as most traders suggest. Among these traders Likerty believes the USD/JPY has not finished its bullish development yet before turning for med-term bearish correction towards 100.xx mark.
According to agddivisas, a trader with the Dukascopy Community, the USD/JPY pair can continue falling without any limitation. "I suppose, the target is 118 level," he said.