- The portion of buy orders edged down 6% points to 53%
- 44% of traders are now long the Buck
- The monthly S1 at 119.93 is the nearest resistance
- Immediate support is around 118.15, represented by Oct 2015 low and the Bollinger band
- 56% of the survey participants expect the US Dollar to cost less than 123.00 yen in three months
- Upcoming events today: US Jobless Claims, UK Trade Balance, US Non-Farm Payrolls, US Unemployment Rate, US Average Hourly Earnings
The Greenback appreciated against most major peers on Wednesday, boosted by the strong reading of the ADP Non-Farm Payrolls. The US currency gained the most against commodity-based currencies, such as the Aussie, the Kiwi and the Loonie, adding 1.27%, 0.98% and 0.57%, respectively. At the same time, the USD/JPY fell 0.50% lower, the EUR/USD edged 0.30% higher, while the USD/CHF experienced the smallest drop of 0.12%.
Meeting minutes of the FOMC's crucial December meeting, when the US central bank made a unanimous historic decision to hike interest rates for the first time in almost a decade, showed that central bankers believed economic activity expanded at a moderate pace. While net exports remained weak, consumer and business spending was solid, while the housing sector improved further. Policy makers expected that with gradual adjustments of monetary policy, economic activity would continue to expand at a moderate pace. However, the Fed expressed concerns over inflation in the near term, saying that recent declines in energy prices and the persistent strength of the US Dollar would exert additional downward pressure. Still, the Committee predicted inflation to reach the target of 2% in 2018, with a gradual gains in the coming years. Inflation has been below the Fed goal for more than three years.
Meanwhile, the US labour market continues to improve, with private-sector creating 257,000 jobs in December, the strongest gain since December 2014. The Fed expects the jobs market to strengthen further. The ADP employment change data came ahead of the government's December payrolls on Friday. Economist predict employers likely added 200,000 workers last month.
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."
US Jobless Claims is the only relevant event today
The Initial Jobless Claims are released by the US Department of Labor, they measure the number of people filing first-time claims for state unemployment insurance. In other words, it provides a measure of strength in the labor market. A larger than expected number indicates weakness in this market which influences the strength and direction of the US economy, but according to expectations, today's figure is likely to improve. The Jobless claims usually have a very limited impact on the market, but it is the only direct event to impact the US Dollar today. Nonetheless, the highly anticipated payrolls data tomorrow is an event to focus on, which might bring the USD back into the light.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 on the brink of plunging to 4.5-month low
Even a positive reading of the employment data Tuesday was insufficient to help the USD/JPY recover. However, the because of that data the pair failed to drop as low as Oct 2015 low, but another devaluation of the Yuan today triggered a buying spree of safe haven currencies, such as the Yen, pushing the Greenback down to 117.63. The Oct 2015 low might still be sufficient to limit intraday losses, but the key support is the monthly S2 at 117.63, a breach of which is to set the USD/JPY on the path to a one-year low of 115.85.Daily chart
The USD/JPY remains in the bearish trend and the support trend-line failed to hold the pair from falling even lower, escalating the bearish momentum. At this rate, if the Buck does not find support or is not boosted sufficiently by any fundamental even – we might see a drop towards the 2015 low as early as next week.
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 62% and 38% 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 07 and Jan 07, the US Dollar is expected to cost 120.29 yen in three months. However, according to the most popular price interval, the US Dollar is likely to cost between 114.00 and 115.50 yen after three months; this price interval was selected by 36% of the voters. The second choice was higher, as 18% of the voters chose the 123.00-124.50 interval. Meanwhile, the majority of 56% 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.