USD/JPY on the back foot for the start of the week, testing the 10-DMA

• USD/JPY struggles to hold in the 110s with profits taken ahead of long US holiday.
• 10-DMA under pressure for the start fo the week with coronavirus dominating risk appetite.

USD/JPY has been stalling on attempts through the 110 handle in February and last Friday's disappointing US Retail Sales has likely diminished the dollar's macro attraction for the open this week., although the US stock market continued to add to gains, with the S&P 500 adding 0.2%. The January headline for Retail Sales came in as expected (+0.3% MoM), yet spending was relatively soft at the start of the new year. However, consumer confidence rose, with no signs yet that the outbreak of COVID-19 is weighing on confidence.

Coronavirus in focus

The latest on the virus has the total number of coronavirus cases in mainland China has reached 68,500, and the total deaths has reached 1,665, according to the latest statistics from China’s National Health Commission on Sunday. China’s National Health Commission reported that there were 2,009 new confirmed cases of the coronavirus and 142 additional deaths as of Feb. 15. The worrying human and economic toll of the COVID-19 outbreak is creating much uncertainty which is likely to support the yen for the foreseeable future, which was pressuring the 10-day moving average at 109.70 on Friday. 

However, China has announced increased fiscal spending to help support the economy, with corporate tax cuts on the agenda, which could stave off a flight to safety for the meantime. Indeed,  the IMF has emphasised the importance of fiscal stimulus and structural reforms to boost what was already an anaemic outlook for global growth.

For today, the 4th Japan Quarter is expected to have contracted, but with the BOJ seen remaining on hold, the Fed and Treasury yields dominate. Analysts at ANZ Bank expect Q4 GDP-figures to tick in with a significant decline. "A VAT-hike and typhoon Hagibis weighed on economic activity, particularly during October. We expect the slowdown to be temporary and the government's big spending package to help the economy out of its slump in H1 20 and thus we expect the Bank of Japan to remain calm and in wait-and-see mode as further bad news from Q4 ticks in."

USD/JPY levels

USD/JPY's 108.30-110.15 February rise has struggled since Wednesday due to much higher reported coronavirus cases in China, including among healthcare workers. Long profits are being taken off the table in to the long US weekend which is going to increase pressures at the 10-DMA support. Bears eye the 21-DMA and Feb. 7 low at 109.53.