USD/JPY consolidates losses but bears keep the baton amid coronavirus fears

• USD/JPY bears catch a breath after a three-day losing streak.
• Fears of coronavirus spreading fast outside China, mainly in Europe, propel the risk aversion.
• The US dollar weakness also weighs on the pair.
• An absence of major data will add importance to the coronavirus headlines.

USD/JPY consolidates losses to 110.20 amid the initial Asian session on Wednesday. That said, the pair portrayed the broad risk-off, led-by coronavirus fears, while declining for the third day in a row during the previous day.

Broad risk-off supersedes fears of Japan’s economic slowdown…

With the coronavirus (COVID-19) spreading fast outside China, mainly in European countries like Spain, Italy, Switzerland and Croatia, market players continue to extend risk aversion. In doing so, they pay a little heed to the fears of the Japanese recession unearthed sometime ago with the Q4 GDP growth numbers.

“Japan remains under significant economic pressure and a recession may be imminent. Despite this, we think the mix of BoP inflows provides the JPY with a significant tailwind — particularly if risk appetite diminishes further. We continue to look for further JPY appreciation against risk-sensitive currencies that are highly leveraged to slowing global growth — the SEK in particular,” said TD securities.

Given the risk aversion, the US 10-year treasury yields drop heavily and revisited the multi-year low of 1.32%, bouncing back to 1.37% by the press time. Further, Wall Street benchmarks registered another day of broad declines, around 3.0% each, as their trading time ends for Tuesday.

Also contributing to the pair’s weakness could be the US dollar weakness against the majority of its counterparts. The reason could be traced from the mixed US data as well as doubts on the Federal Reserve’s bullish bias amid the current risk-off period that dents US bond yields and stocks. Even so, the latest comments from the Fed policymakers, like Vice Chair Clarida, tried to placate traders.

Moving on, an absence of major data/events on the Japanese economic calendar will keep investors searching coronavirus updates for fresh impulse.

Technical Analysis

FXStreet’s Valeria Bednarik cites the risk of the USD/JPY pair’s extended slump:

The USD/JPY pair is down for a third consecutive day, and at risk of extending its slump. The 4-hour chart shows that the pair is below its 100 SMA for the first time since early February, while the 20 SMA turned sharply lower over 100 pips above the current level. Technical indicators maintain their bearish slopes near oversold readings. An extension below the 110.00 level favors a downward continuation toward 109.65, where the pair bottomed on February 18.

Support levels: 109.65 109.30 108.90

Resistance levels: 110.35 110.60 110.95