Market Brief: Nikkei 225 Down, Risk Currencies Gap Lower, Hang Seng Index Closed for CNY

Summary:
• With other Asian equities markets closed for the holiday, the Nikkei 225 took the brunt of risk aversion as it closed over 400 points lower today.

The Nikkei 225 closed 483.7 points or 2.03% lower at 23,343.5 today as fears of the coronavirus continued to dictate market sentiment. Meanwhile, the Hang Seng Index and Shanghai Composite Index were closed today for the Chinese New Year.

Coronavirus Continues to Spread

News over the weekend reported that the number of confirmed cases of the novel coronavirus has now reached 2,800. The death toll has also risen to 80. These numbers are staggering compared to where they were two weeks ago at 800 and 18. In response, the Chinese government has imposed a travel ban on the coronavirus epicenter, Wuhan. Nine other Chinese cities have limited travel and mass celebrations for the Lunar New Year were cancelled.

Concerns about the infection have consequently weighed down on some construction, transportation, and retail companies. Today’s biggest loser on the Nikkei 225 was Pacific Metals Co. which was down 7.90%. Keisie Electric Railway Co. and Fast Retailing Co incurred the second- and third-biggest losses at 6.22% and 5.66%, respectively.

Attacks on Baghdad’s Green Zone

Of course, it also did not help that Baghad’s Green Zone was bombed over the weekend. The area which houses US military troops and the US embassy was reportedly hit by three rockets on Sunday. No one has claimed responsibility for the attack. However, US policymakers are pointing their fingers at Iran-backed militia taking their revenge for the death of General Soleimani.

Currencies are also down in today’s Asian session with most of the majors incurring gaps. AUDUSD opened 11 pips lower at 0.6812 today. Meanwhile, NZDUSD has a 15-pip gap at 0.6589. USDJPY also opened 31 pips lower at 108.92.

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NZDUSD Outlook

On the weekly time frame, we can see that the recent drop on NZDUSD has pushed the currency pair to the previous trend line. Connecting the highs of February 11, 2018, April 8, 2018, March 24, 2019, and July 21, 2019, we can see that the trend line is now being tested for support. This price, around 0.6570, also coincides with the area between the 23.6% and 38.2% Fib levels (drawing the Fibonacci retracement tool from the low of September 29 to the high of December 29). If this week’s candle closes as a reversal candle, it could mean that NZDUSD may soon resume its uptrend. Near-term resistance is around 0.6750.

On the other hand, a close below 0.6545 could signal that NZDUSD may soon fall to its November lows around 0.6250.