Japanese Yen, Coronavirus Outbreak, Talking Points:
- USD/JPY headed lower as the markets focused on the coronavirus outbreak
- The Chinese New Year season will see huge travel both in China and beyond
- Asia Pacific investors have painful memories of other diseases’ effects
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The Japanese Yen gained Tuesday as markets reacted nervously to overnight news that the World Health Organization is to convene an emergency meeting to discuss this year’s outbreak of coronavirus.
The virus is thought to have infected humans via a fish-market in China with cases also reported in Thailand and Japan. The outbreak has come just as millions are set to travel both within China and overseas to celebrate Chinese New Year at the weekend.
While the death toll so far remains small, Asian investors have all-too-vivid memories of the Severe Acute Respiratory Syndrome (SARS). That disease also originated in China and its 2002/03 outbreak lead to more than 700 deaths worldwide and caused widespread economic difficulty and travel disruption.
On its daily chart the Japanese Yen remains under some longer-term pressure against the US Dollar and other currencies.
Last week’s signing of an interim trade agreement between China and the US has helped boost risk appetite, as has the fading prospect of military confrontation between Washington and Tehran. The US corporate earnings season has also cheered the Wall Street crowd. USD/JPY has risen well above the broad trading range which had previously bounded trade since November 4.
However, the rise is starting to look a bit overdone with momentum indicators suggesting that the Dollar is now overbought. That need not mean that a marked correction lower is coming up anytime soon, but it is notable that the current rally seems to have faded out just short of the downtrend line that has capped the market since mid-2015.
It remains close at hand though and will remain a tempting target for the bulls for as long as they can keep the pair above that trading range, assuming that the coronavirus story does not worsen.
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of clients are net long.
of clients are net short.
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— Written by David Cottle, DailyFX Research
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