Harry Xu

Yen Advances; “Wuhan Coronavirus” Hits Risk, “SARS” Recalled

Summary: Reports of a SARS-like deadly virus, originated from China, and migrated to the US hit market risk with concerns about the potential economic impact. Lunar New Year celebrations which began this week were discontinued by China to prevent a global outbreak of the “Wuhan coronavirus”, as it has been referred to.  Amid the risk aversion, FX haven-sought Yen outperformed, USD/JPY was down to 109.80 from 110.17. The Aussie, Offshore Chinese Yuan (CNH) and Asians were the weakest. AUD/USD slumped 0.42% to its lowest this month at 0.6845 (0.6872). The Dollar bounced back against the Offshore Chinese Yuan to 6.9105 from 6.8680. The Euro ended flat at 1.1095 despite an upbeat German and Eurozone ZEW report. Sterling soared to a high at 1.30834 on better-than-expected UK Employment data, settling to close at 1.3050, up 0.35%. The risk-off sentiment hit stocks and boosted Treasuries. Global equities, including Wall Street closed in the red. The DOW was 0.54% lower to 29,203 while the S&P 500 dipped to 3320 from 3327. The rise in Treasuries saw the US 10-year yield fall 5 basis points to 1.77%. Germany’s 10-Year Bund yield was down to -0.25% from -0.22%.

IG – DOLLAR CNH Chart – 22 January 2020

The Bank of Japan left its rates unchanged as expected. BOJ Governor Haruhiko Kuroda was mildly optimistic. Kuroda said the BOJ would consider its commitment to maintaining ultra-low interest rates if the global economy showed further signs of recovery. Germany’s ZEW Economic Sentiment Index beat forecasts, rising to 26.7 from 10.7 the previous month. Eurozone ZEW Economic Sentiment rose to 25.6, better than median expectations at 16.3. UK Average Weekly Earnings (Wages) rose to 3.2%, beating forecasts of 3.1% while Claimant Count Change (change in claims for Unemployment benefits) fell to 14.9%, bettering forecasts of 33.4%.

  • USD/JPY – The Dollar dropped against the haven-sought Yen amidst the market’s risk-off stance and mildly optimistic Bank of Japan. USD/JPY plunged to an overnight low at 109.76 from 110.17, and closing at 109.80, not far-off from its lows.
  • AUD/USD – The Aussie Battler slumped to 0.68426, (0.6872), its lowest level this month. The Aussie continues to struggle under the weight of the recent bushfires and its effect on the domestic economy as well as the latest market fears on the SARS like virus. Lower Asian currencies also weighed on the Battler.
  • GBP/USD – Sterling soared to an overnight high at 1.30834 on the better-than-expected UK Employment report. Average Earnings rose while jobless claims fell. The Unemployment rate was unchanged at 3.8%. The British Pound closed at 1.3050, up 0.35%.
Germany ZEW Economic Sentiment Index – FX Factory – 22 January 2020
  • EUR/USD – the shared currency lifted to a high at 1.11180 before easing to settle back down at 1.1095, unchanged from yesterday’s close. The upbeat German and Eurozone ZEW Economic Sentiment failed to lift the Euro.

On the Lookout: It’s all about market fears today on the latest virus and its impact on the global economy. At the outset of the Lunar New Year, the outbreak is certain to affect spending associated with the holidays. Traders will keep their eyes on any further developments from press releases.
The World Economic Forum in Davos, Switzerland will be the big event. The annual meeting is attended by central bankers, prime ministers, finance and trade ministers, and business leaders from over 90 countries. The meeting is open to the press and comments made can influence and potentially create volatility.
Data today sees Australia’s Westpac Consumer Sentiment as the lone Australasian data. Europe follows next with the UK Public Sector Net Borrowing and CBI Industrial Order Expectations. Canada takes centre stage with its CPI reports (Headline, Trimmed, Core and Median). The Bank of Canada meets on rates and will issue its Monetary Policy Report as well as Rate Statement. The BOC is not expected to change its Overnight Rate, currently at 1.75%. US data released are HPI (House Price Index) and Existing Home Sales.

Trading Perspective: Expect the risk-off impact on FX to continue in the early part of Asian trading with the Yen leading the way. The Dollar Index (USD/DXY) was moderately lower to 97.540 (97.621). The latest COT report saw net US Dollar long bets fall to an 18-month low. The Dollar was sold against all the majors. Speculators were still short in the Euro, Yen, Aussie Kiwi and Swiss Franc. Against the Pound and Canadian Dollar, the specs were long currency (short USD). On that basis, the risk is still for a lower US Dollar. This time the Yen could lead.

IG Daily FX USD JPY Hourly Chart – 22 JANUARY 2020
  1. USD/JPY – The Dollar steadied against the Yen at 109.80, not far from it’s overnight low at 109.761. Which suggests room for further downside in this currency pair. Speculative JPY shorts increased to -JPY 31,430 bets from -JPY 12,248. USD/JPY has immediate resistance at 110.05 followed by 110.25. Immediate support can be found at 109.50 and 109.20. Look for a likely range today of 109.25-109.85. Look to sell rallies.
  2. EUR/USD – Expect the Euro to grind its way higher in the current environment. Keep in mind that the speculators are still short in the Euro despite trimming bets in the latest COT report. Immediate support can be found at 1.1085 followed by 1.1065. Immediate resistance lies at 1.1120 and 1.1150. The shared currency is stabilising and the better-than-expected ZEW survey will keep the Euro supported. Look to buy dips with a likely range of 1.1085-1.1135.
AUD USD 6 M Chart – Trading View – 22 January 2020
  1. AUD/USD – The Battler once again finds itself under pressure with the latest pandemic negatively impact the Chinese Yuan and Asian currencies. The Aussie traded to an overnight and monthly low at 0.68426, settling at 0.6845. Immediate support can be found at 0.6820 followed by 0.6800. The Aussie has immediate resistance at 0.6880 (overnight high 0.68805) and 0.6910. The latest COT report saw net speculative Aussie shorts at -AUD 20,549. Look to trade a likely range today of 0.6835 to 0.6885. Prefer to buy dips.

Happy trading all.