USD/JPY drops to weekly low near 109.80 as fears of SARS return remain in focus

USD/JPY extends the previous day’s losses to 109.80, the weakest since January 07, while entering the Asian session on Wednesday. The pair registered heavy losses on Tuesday as news of China’s virus outbreaks gone viral. Also, contributing to the risk-off was the beginning of the US President Donald Trump’s impeachment hearing, BOJ meeting and the International Monetary Fund’s (IMF) economic growth forecast.

Chinese New Year celebrations will bear the burden of coronavirus…

Six lives have already been claimed due to the human transmitted disease that was first detected in Wuhan, in the Hubei province west of Shanghai. Even so, news of its international footprints can’t be ruled out. With this, markets fear the return of Severe Acute Respiratory Syndrome (SARS) virus that resulted in 774 deaths in 26 countries during 2002/03.

China has diverted its mind from Lunar New Year preparations to regulatory measures whereas the World Health Organisation (WHO) will also meet later today to consider declaring a global health emergency.

At home, the Bank of Japan (BOJ) announced no monetary policy change, as expected, but inflated its GDP forecasts while trimming the inflation projections in its latest meeting. Governor Haruhiko Kuroda sent mixed messages but kept supporting the easy money policy.

Elsewhere, the risk-tone also got heavy as the IMF cut global growth forecasts, despite citing recovery during 2020, as well as due to the start of US President Donald Trump’s impeachment hearing.

With this, the US 10-year treasury yields decline more than six basis points (bps) to 1.77% whereas Wall Street closed in red after returning from an extended weekend.

Looking forward, an absence of major data/events on the economic calendar could push traders to keep the previous view intact while following trade/political headlines for fresh direction. During the US session, the Chicago Fed National Activity Index and housing market numbers will occupy the data-line.

Technical Analysis

Given the price declines below 10-day SMA, at 109.89 now, chances of further weakness towards a 21-day SMA level of 109.31 can’t be ruled out. On the upside, pair’s rise beyond 109.90 needs to be backed by sustained trading above 110.30 to aim for May month high near 110.70.