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USD/JPY Fundamental Daily Forecast – Supported by Rising Global Equity Markets; Firmer Yields

By:
James Hyerczyk
Published: Feb 4, 2020, 12:00 UTC

The USD/JPY is being supported by improving sentiment as investors brush aside economic fears over the coronavirus outbreak. 

USD/JPY

The Dollar/Yen is trading higher as investors continue to take the coronavirus in stride at the start of the week with the markets finishing higher in Asia, moving higher in Europe and expected to open higher in the United States according to the early futures contract performance. At the same time, U.S. Treasury yields are edging higher across the curve with the benchmark 10-year yield up by 4 basis points to 1.568%.

At 11:21 GMT, the USD/JPY settled at 109.035, up 0.345 or +0.32%.

In Asia, mainland Chinese stocks saw a partial recovery on Tuesday after deep losses on Monday, as investors weighed the potential economic impact of the ongoing coronavirus outbreak that has killed hundreds in China so far.

European markets traded higher on Tuesday as sentiment improved and investors brushed aside economic fears over the coronavirus outbreak. The pan-European Stoxx 600 climbed 0.9% in early deals, with basic resource stocks each adding 2.8% to lead gains as all sectors and major bourses entered positive territory.

Meanwhile, U.S. government debt yields were higher Tuesday morning, as investors monitored several events and awaited President Donald Trump’s State of the Union speech.

Concerns over Impact of Coronavirus Dissipating

Increasing demand for higher risk assets and the shedding of safe-have assets like U.S. Treasurys and Japanese Yen are all signs that worries over the impact of the coronavirus are dissipating.

Two Chinese state media outlets on Tuesday urged investors not to panic over the plunge in mainland markets a day earlier, as concerns over the spread of a new coronavirus spooked investors.

The state-backed media Securities Times said it’s normal to see large fluctuations ins markets following major events that occur suddenly, while China Securities Journal called the market decline a “black swan” event that will not alter China’s long-term fundamentals, according to CNBC’s translation of the Chinese-language text.

The paper added that most of the negative economic impact from the virus outbreak will be felt in the first quarter. But the Chinese economy could stabilize after that with support from government, it said in the op-ed.

“Looking at the longer-term…there’s no need to overestimate the impact of black swan events – such as a sudden public health threat – on the financial markets,” it said.

Daily Forecast

Look for the USD/JPY to continue to move higher as long as Treasury yields rise and the demand for risky assets is sustained. On the data front, traders will get the chance to react to a report on U.S. Factory Orders at 15:00 GMT.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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