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USD/JPY Fundamental Daily Forecast – Light Short-Covering as Safe-Haven Demand Eases

The early price action suggests an easing of concerns over the spread of coronavirus could encourage investors to liquidate their safe-haven Japanese Yen positions placed earlier in the week. This would drive the USD/JPY higher.
James Hyerczyk

The Dollar/Yen is trading slightly better on Wednesday and inside yesterday’s trading range. This typically indicates investor indecision and impending volatility. There was no follow-through to the downside, following yesterday’s steep break.

The price action is being fueled by an easing of tensions over the spread of the corona virus. The news is enough to underpin the Forex pair, but not enough signal a resumption of the uptrend.

At 11:20 GMT, the USD/JPY is trading 109.948, up 0.087 or +0.08%.

Tensions over Corona Virus Ease but Remain at Forefront

Public health officials have confirmed the first U.S. case of a mysterious coronavirus that has sickened hundreds of people in China, the Centers for Disease Control (CDC) and Prevention said Tuesday.

On Wednesday, Chinese officials confirmed that nine people died as of January 21.

Meanwhile, CDC officials said they continue to believe the risk of it spreading to the American public is “low.”

The World Health Organization is expected to convene a panel of experts in Geneva, Switzerland, on Wednesday to consider whether the illness should be a global health emergency.

Demand for safe-haven assets are easing because China’s response to the virus outbreak tempered some fears of a global pandemic. China’s response and candor – in contrast to the initial cover-up of the SARS outbreak in 2002-03 – have helped reassure investors concerned about the possible global fallout.

China’s National Health Commission said on Wednesday there were 440 cases of the new virus, with nine deaths so far. Measures are now in place to minimize public gatherings in the most-affected regions.

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Receding Risks May Give BOJ Room to Tweak Forward Guidance

After Tuesday’s Bank of Japan decisions to leave policy and interest rates unchanged, policymakers could consider watering down later this year its commitment to keep or cut its rock-bottom interest rates, if pessimism over the global outlook continues to recede, sources say.

Any such tweak would be a sign Japan’s central bank is stepping back from the likelihood of expanding stimulus anytime soon, said three sources familiar with the BOJ’s thinking.

“If global economic growth shows clear signs of recovery around mid-year, there may be room to debate modifying the forward guidance,” one of the sources said on condition of anonymity because of the sensitivity of the matter.

BOJ Governor Haruhiko Kuroda on Tuesday did not rule out the chances of debating a tweak, but set the bar fairly high.

“If risks subside significantly and growth jumps up more than we project now, a review could be debated,” Kuroda told a briefing. “For now, it’s appropriate to maintain our policy stance based on our current growth and price projections.”

Daily Forecast

The early price action suggests an easing of concerns over the spread of coronavirus could encourage investors to liquidate their safe-haven Japanese Yen positions placed earlier in the week. This would drive the USD/JPY higher.

If worries continue to linger then the Forex pair could become rangebound over the short-term.

Later today, traders will get an opportunity to react to the latest data on U.S. Existing Home Sales. Look for an increase of 5.43M from 5.35M.

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