- The share of purchase orders declined from 62 to 59%
- Bears are now outnumbering the bulls by 4% points
- The nearest resistance around 113.88, namely the monthly S2 and the weekly PP
- Major demand area is seen circa 112.00 yen
- 50% of the survey participants expect the US Dollar to cost more or less than 120 yen in three months
- Upcoming events: US Empire State manufacturing Index, US NAHB Housing Market Index, Japanese Core Machinery Orders
The US ended the week relatively positive, as it appreciated against most major peers on Friday and over the weekend. The US Dollar posted the most notable gains against the New Zealand Dollar, although the performance versus the other two commodity-based currencies was not as formidable. The Greenback added only 0.04% against the Australian Dollar, whereas a 0.62% decline was registered against the Canadian counterpart. Positive US fundamental data also sparked a USD buying spree, allowing the American Dollar to outperform the safe-haven Yen, against which the currency added 0.74%. The EUR/USD dropped 0.59% lower, while the USD/CHF climbed 0.47% higher. At the same time, another decline of 0.20% was registered against the British Pound.
Japan's economy shrank in the final quarter of 2015 despite of more than three years of Abenomics programme aimed at rejuvenating the world's third biggest economy. Japan's economy contracted an annualized 1.4% in the three months through December as consumers refrained from spending, while exports to emerging markets failed to gather enough momentum to make up for weak domestic demand. The decline in gross domestic product appeared to be bigger than economists' median forecast for a 1.2% drop and followed a revised 1.3% rise in the preceding quarter, according to Cabinet Office. Private consumption, which accounts for 60% of GDP, declined 0.8%, a sign Abe's stimulus programme have so far failed to encourage households to spend. While domestic demand subtracted 0.5 percentage point from GDP growth, external demand, or net exports, added 0.1 point amid a decline in the value of imports triggered by plunging oil prices.
Last month the Bank of Japan stunned markets by introducing a negative benchmark interest rate, in an attempt to stimulate the economy as volatile financial markets threatened its efforts to overcome deflation. Analysts expect the central bank to take additional easing at its next meeting in March, as the downside risks to the BoJ's outlook for growth and inflation are increasing.
Vatsal Srivastava, director at the Blackwater Consulting, explains why the US Dollar is a advancing against the Yen this week. Even though he says that there was nothing fundamentally driving USD/JPY on Monday, one of the key drivers is the falling oil prices, which is actually boosting the Yen, in his opinion, as there is an addition cause for more QQE. Vatsal Srivastava also mentions that "it is going to be a hard economic ride ahead and there seems to be no light on the horizon for Japan as of now". "Lets hope for the best," he added.
Another uneventful Monday
With Japanese GDP figures already released, there are no further significant economic events to influence the USD/JPY today. However, tomorrow attention should be paid to the US Empire State Manufacturing Survey. It is conducted by the Federal Reserve Bank of New York gauges business conditions for New York manufacturers. It is a leading indicator of economic health, a strong reading of which could bring back confidence in global economic growth. Another important economic releases will be the NAHB Housing Market Index, which is released by the National Association of Home Builders. It presents home sales and expected home buildings in the future indicating housing market trend in the United States. The growth rate of the housing market affects the USD volatility.USD/JPY enjoys risk appetite
The US currency succeeded in appreciating against the Yen on Friday, with gains limited by the resistance trend-line at 113.20. Earlier today the Buck strengthened even further, as the risk-on sentiment returned to the markets. The USD/JPY currency pair now faces a rather strong resistance, represented by the monthly S2 and the weekly PP, a breach of which is required for the pair to completely exit the previous two-week down-trend. The bearish trend could still prevail, pushing the Greenback towards the nearest support circa 112.00, as technical studies retain negative signals.Daily chart
The US currency failed to bounce back from the channel's resistance line over the weekend, causing a second break out of the trading range. The pair appears to have now entered a new ascending channel, although risks of price returning below 113.00 persist.
Hourly chart
SWFX sentiment stays bullish
Traders at OANDA and Saxo Bank have a diametrically opposite view of the pair's future. Clients of both brokers are mostly bullish. Canadian-based foreign exchange company reports that 67% of open positions are long (previously 66%), and the Danish bank reports that 61% of its clients' positions are long, compared to 59% previously.
Spreads (avg, pip) / Trading volume / Volatility
Exactly a half expect the exchange rate to rise above 120 yen
The half of the survey participants (50%) expect the US Dollar to cost more than 120.00 yen in three months. The most popular choice is the 120.00-121.50 price interval, selected by 16% of the voters; however, according to the votes collected between Jan 15 and Feb 15, the mean forecast for May 15 is 118.90. At the same time, 14% of the surveyed believe the Greenback could fall in the 111.00-112.50 price interval after a three month period.