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  • USD/JPY bulls replenish the 110 handle, but for how long in the face of the coronavirus spread?
  • Principal deputy director of the CDC: “Current global circumstances suggest it’s likely this virus will cause a pandemic.”

USD/JPY fell from 111.00 in Asia yesterday to just below 110.00 in the New York session following a drop in US stocks and lower US yields and equities. The coronavirus is making for extreme volatility and the VIX is now at 29, up from 15 last week. The yen has taken back its safe-haven status and markets await further updates on the spread of the coronavirus. 

US 2-year treasury yields fell from 1.29% to 1.18% (lowest since 2017), 10-year yields from 1.40% to 1.31% (lowest since at least 1960). “Markets are pricing a 25% chance of easing at the next Fed decision on 18 March, and a terminal rate of 0.85% (vs Fed’s mid-rate at 1.63% currently, effective FFR at 1.58%),” analysts at Westpac explained. 

The virus developments continue to dominate headlines as it the severity of the situation is evolving rapidly, leading Anne Schuchat, principal deputy director of the CDC to say, “current global circumstances suggest it’s likely this virus will cause a pandemic,” Anne Schuchat, principal deputy director of the CDC,” and “it’s not so much a question of if this will happen any more, but rather more a question of when this will happen.” More on this here.

Analysts at ANZ Bank warn, “with cases outside of China firmly in the spotlight. The potential economic impacts remain highly uncertain. Reduced trade and people flows, workplace absenteeism, supply chain disruption, and the impact on consumer and business sentiment are all going to weigh on growth.” 

Fed not prepared to speculate on coronavirus

  • Fed Vice Chairman Richard Clarida: Too early to speculate on coronavirus

Meanwhile, it was ears to the ground for Federal Reserve speakers and their opinions on the matter, although there was nothing from them. “Federal Reserve Vice Chair Clarida disputed suggestions that the central bank suffers from a “hall of mirrors” problem under which it slavishly follows financial-market expectations for monetary policy. He said they place at least as much weight on surveys of Fed watchers as price signals from the market in trying to determine expectations for policy,” analysts at Westpac explained. 

US data disappoints

As for US data, the Richmond Fed’s Feb manufacturing survey showed evidence of business concern over Covid-19, tumbling from +20 to -2 (vs estimate of +10). The Conference Board US consumer confidence also disappointed slightly at 130.7 in Feb (vs estimate of 132.2, and prior revised from 131.6 to 130.4).

USD/JPY levels

  • USD/JPY Forecast: Breaking through the 110.00 threshold