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  • USD/JPY fell in a risk-off environment, the trigger was the coronavirus.
  • There was little merit for USD/JPY to be on the 110 handle, and 109.20s have now been marked. 

USD/JPY has tumbled to print fresh lows since failing on the 110 handle, scoring 109.26 and meeting the 200-moving average on the four-hour chart. At the time of writing, the price is resting in the 109.40s having travelled from a high of 109.86 on the day. 

The markets are risk-off, but the pair was struggling for too long in the 110s while US-JP spreads were also favouring a correction. The latest news, however, over the coronavirus could be something to support prices within the 109 handle for longer considering that the World Health Organisation has just announced that it is too early to declare it as a public health emergency. 

Meanwhile, with a focus in US stocks and the Federal Reserve interest rate meeting around the corner, the US dollar will now be the likely driver. That said this doesn’t give much scope for an uberly bullish US dollar. 

Fed in focus

Markets are certain of one thing, that the funds rate will be left unchanged considering how early on it is in the year and so soon following the Chinese/Sino trade deal without seeing what affect the December announcements of a deal have had on US businesses and sentiment, directly affecting the US economy and inflationary prospects. Therefore, the statement is also likely to be unchanged, or if there are any tweaks the should be minor. 

“Policy will likely still described as “appropriate” but with officials also still in “monitor[ing]” mode, consistent with an easing bias,” analysts at TD Securities explained. 

On a bearish note, the analysts at TD Securities argued that the Fed meeting should still leave the USD the best of a bad lot but within tolerable ranges:

  • “EURUSD lacks a directional macro impulse to offset negative carry dynamics. Tactically, we remain comfortable with our USDCAD long and bias for USDJPY to correct lower as its move to 110 was without merit.”
  • “We expect little market reaction to a Fed message of data dependence, but the market should continue to price in at least one rate cut in 2020 due to asymmetric risks.”

USD/JPY levels