USDJPY
USDJPY continued to trade lower for the most part of yesterday’s trading. The currency pair fell to its three-week low at 108.57. However, it recouped most of its losses to finish the day at 108.93 which was only 6 pips below its open price.
The fall on USDJPY can mostly be attributed to risk aversion triggered by growing concerns about the coronavirus which originated in China.
As of this writing, there are 9,776 confirmed cases and the death toll has risen to 213 (from 130 yesterday). The rapid rise in these numbers have consequently pushed policymakers to take precautionary measures. For instance, the Chinese province of Shandong wants to extend the holidays for workers to February 10. The US has issued a travel advisory to its citizens not to travel to China. Meanwhile, Japan has classified the coronavirus as a “designated infectious disease.” This means that hospitalization is required to those suspected of the disease and stricter measures of screening will be implemented to those entering the country.
While these steps are geared towards containing the disease, they may directly or indirectly cause disruptions in business activity. Consequently, the yen’s safe haven status has been attracting demand amid fears.
Meanwhile, a few economic reports from Japan were released late last night. The CPI figure for Tokyo printed lower than expected at 0.7% versus the 0.8% consensus. Meanwhile, retail sales for December contracted by 2.7%, much deeper than the 1.7% decline forecasted. On the other hand, the unemployment rate topped expectations at 2.2%.. It was estimated at 2.3%. Lastly, industrial production grew by 1.3%. This was almost double the forecast at 0.7%.
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On the daily time frame, we can see that USDJPY has been finding support at the 100 SMA and 200 SMA, thus far. Reversal candles around the 109.00 psychological handle suggests that it may soon trade higher to 110.20. A strong bullish close above Tuesday’s high at 109.25 could be the confirmation needed to trigger this rally.
On the other hand, the 4-hour time frame shows that USDJPY is on a medium-term downtrend. By connecting the highs of January 21, January 22, and January 29, we can see that the currency pair is testing resistance at the falling trend line. The 109.00 handle, where USDJPY is currently trading, also coincides with the area between the 23.6% and 38.2% Fib levels (drawing the Fibonacci retracement tool from the high of January 21 to yesterday’s low). A bearish close below 108.56 may invalidate support on the daily and could mean that USDJPY may fall to its January 6 lows around 107.80.