USD/JPY: Bulls and bears jostle around 109.90 amid mild risk-aversion

• USD/JPY continues to grind lower but the US dollar strength restricts major downside.
• Chinese outbreak of coronavirus confronts mixed trade headlines to affect the risk sentiments.
• Second-tier Japanese data, trade/political headlines can entertain investors ahead of the US session.

USD/JPY extends its lower grind to 109.90 at the start of Thursday’s Asian session. While the Japanese yen’s safe-haven demand, amid current risk-off trading sentiment, weighs on the pair, markets also respected the US dollar as a safe-haven and limited the losses in turn.

WHO praises China for commitment…

The World Health Organization (WHO) delayed terming the coronavirus as an international emergency and lauded Beijing for its quick and strong measures/cooperation to investigate the matter. The dragon nation is very close to its Lunar New Year but the outbreak of coronavirus from Wuhan pushed the preparations on the shelf while also spreading global worries concerning the return Severe Acute Respiratory Syndrome (SARS) virus that resulted in 774 deaths in 26 countries during 2002/03.

The disease so far has taken nine lives in China and authorities have nearly sealed Wuhan while also keeping eyes on the rest of the nation to understand the severity of the grave concern. The virus is known to be humanly transmitted and challenged the market’s risk tone off-late.

Trade doldrums also play their role…

The US will reduce some part of its tariffs on Chinese products, as agreed in the phase-one deal, from this Valentines’ day while there prevails uncertainty about the impact of the US-China deal on global financial markets.

More importantly, the US President Donald Trump threatened to levy tariffs on the EU cars, expectedly to push the region towards opening up its agricultural line for the US, while speaking from the World Economic Forum (WEF) in Davos. The European Union (EU) failed to counter much expect a mild response.

With trade and geopolitical fears have been driving the markets off-late, the US 10-year treasury yields remain weak around 1.77% whereas global equities have also shown mixed results. To portray this, ANZ said, “News from Beijing of a nationwide screening effort to contain the new respiratory virus, including increased transportation monitoring and ordering a near-complete shutdown of central Wuhan (where it was first detected) helped alleviate fears of a major global health crisis. This, alongside solid reported earnings, supported US equities, with the S&P up 0.2% at the time of writing. However, Trump’s threat to impose tariffs on EU auto imports weighed.”

Investors will now focus on Japan’s trade numbers, All Industry Activity Index and Leading Economic Index, coupled with the news headlines, as immediate catalysts. While a likely recovery in Japanese numbers may help the pair to remain under pressure, the BOJ Governor’s overall dovish outlook in the latest meeting, as well as the broad US dollar strength, could keep the pair lifted.

It’s worth mentioning that the on-going impeachment hearing of US President Donald Trump has failed to deliver any major results so far but the republicans are moving forward and could restore their leaders’ reputation, which in turn could help build the trading sentiment.

Technical Analysis

The 109.80/70 support area including the recent lows and multiple highs marked from late-December restricts the pair’s immediate declines. On the other hand, buyers look for entry beyond 110.30.