- The portion of purchase orders increased from 59 to 65%
- There are now 74% of long positions
- 20-day SMA and weekly PP represent resistance around 120.10
- Support is at 119.93 (monthly PP)
- The average three-month forecast stands at 120.90
- Upcoming events today: US NFIB Small Business Index, US Monthly Budget Statement, Japanese PPI
The US currency declined against most major peers on Monday, as some Fed officials backed the view of a rate hike delay. The Greenback lost 0.38% against the Aussie, 0.35% against the Kiwi, 0.21% versus the Sterling and 0.19% versus the Yen. Gains, however, were registered against the Swissie and the Loonie, adding 0.14% and 0.41%, respectively. Furthermore, the EUR/USD exchange rate remained unchanged.
The number of people who filed for unemployment assistance in the US declined more-than-expected in the week ended October 3, extending a run of applications near decade lows that shows dismissals remain in check. According to the Labour Department report, unemployment claims fell by 13,000 to 263,000 in the reported week, beating market estimates of 274,000 applications. Even though claims data tends to be uneven from week to week, the number of applications has generally been declining since 2009. Nevertheless, other measures of the labour market in the US suggest some cooling in recent months, as the recent NFP figures showed that employers added 142,000 jobs in September and 136,000 in August.
At the same time, the Federal Reserve released the minutes of its most recent meeting in September, when the policymakers decided to hold off on raising the Fed Funds rate. Minutes revealed that the FOMC members are mostly worried about low inflation outlook, while they admit the US has approached the full employment situation. Despite that, the majority of them noted that they are still on track of hiking in 2015, but recent weak jobs' report may postpone the decision to the next year.
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 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."
Monthly Budget Statement
With the Japanese data already published, focus shifts to the US fundamentals, namely the Monthly Budget Statement. The Monthly Budget Statement is released by the Financial Management Service and summarizes the financial activities of federal entities, disbursing officers, and Federal Reserve banks. A significant improvement is expected, but it might lack the required stimulus to boost the US currency, especially after mixed Chinese fundamentals and Fed officials backing the view of a rate hike delay.
Marcel Thieliant, economist from Capital Economics, forecasts USD/JPY to be at 130.00 by the end of the second quarter. The analyst commented that he expects the BoJ to step up the pace of easing at the end of this month. "This is obviously not what other economists expect, if that happens, we will probably see a strong drop in the Yen against the Dollar and against other major currencies," Thieliant said.
Steve Lucas, technical analyst at 3CANALYSIS, gives their perspectives on the USD/JPY currency pair. "We have persistently been bullish of USD/JPY, but in the very short-term we think there will be a pullback", he said. Steve explained their view by mentioning that since the pair posted the 12.5 year high in June, last week put in a bearish reversal candle, which is a negative signal. "We also think that the deception out there is that the Fed is going to be a little easier on raising interest rates and people are going to be a bit cautious and a bit sensible and take the money off the table", the analyst added.
USD/JPY to drop under 120.00
The weekly PP and 20-day SMA failed to provide sufficient support in order to help the Buck outperform the Yen. As a result, the USD/JPY lost 14 pips and risks falling even deeper down today, as the mixed Chinese data boosted the Japanese currency. Furthermore, several Fed officials backed the Fed rate hike delay view, weakening the Greenback even more. The monthly PP is now the immediate support, but a cluster around 119.70 is stronger. Meanwhile, technical studies are giving bearish signals, also suggesting the Buck is to suffer more losses today.Daily chart
As was anticipated, the US Dollar kept moving towards the 120.00 major level yesterday, piercing the 200-hour SMA. Although attempts to rebound were made by day's end, the 200-hour SMA caused the USD/JPY to bounce back again today, forcing it to edge closer to the support trend-line, which should limit the losses or cause another rebound.
Hourly chart
Bulls preserve majority
OANDA and SAXO Bank also report minor preponderance of bullish market participants. In the first case the longs take up 57% of the market (55% previously). In the second case 64% of open positions are long, up from 61% on Monday.
Spreads (avg, pip) / Trading volume / Volatility
The average three-month forecast stands at 120.90
The 121.50-123.00 price interval remains the most popular choice, selected by a fifth (20%) of all voters. The second most popular choice is the 114.00-125.50 price range, voted for by 14% of the survey participants. Meanwhile, the mean forecast for January 13 is 120.90, while 39% of the surveyed still assume the Dollar could cost less than 120 yen in three months.
Traders' verdict concerning the USD/JPY performance is rather positive, as 56% of them expect the Buck to climb higher versus the Japanese currency by the end of the week.
One of the members of the Dukascopy Community, PPanM, expects the Greenback to edge higher versus the Yen by the end of the week. He explain his view with the following comment: "the USD/JPY market is going to continue to be choppy and moving sideways. I do think this pair goes higher given enough time and break above the 121." Nuonrg, another survey participant, believes that the pressure is on the USD/JPY, as the pair has been channelling on 4H chart since September 8. "October, perhaps, has the possibility to make this pair break the range and move out of it. The price is moving lower on the daily chart, so I prefer a move lower before we might see some bounce or move higher as the weekly uptrend is still in place. This week ends at the 120.200 level, perhaps, it moves into 120.80 but then lower", nuonrg explained.