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Japanese Yen Gains On Wuhan Virus, USD/JPY Nears Key Prop

Japanese Yen Technical Analysis Talking Points:

  • USD/JPY has slipped to two-week lows
  • AUD/JPY is doing much worse, essentially back to where it was in late October
  • Coronavirus headlines are clearly still driving the market, with the Yen unlikely to weaken much while they do

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The Japanese Yen has risen to two-week highs against the US Dollar as fears surrounding the spread of so-called Wuhan strain coronavirus continue to rock financial markets.

Investors cannot help but have memories of the disruption caused by 2003’s outbreak of Severe Acute Respiratory Syndrome as this latest similar but so-far less lethal virus is found as far from its Chinese point of origin as the United States and Western Europe.

Given this sinister market driver, counter-cyclical ‘haven’ assets are much in demand, with Gold, the Swiss Franc and the Japanese Yen as ever atop the list.

USD/JPY BEARISH

Data provided by

of clients are net long. of clients are net short.

Change inLongsShortsOI
Daily7%2%5%
Weekly22%-39%-18%

Technically-speaking USD/JPY has retreated once again into a trading band it has been reluctant to leave for very long since November 3, whether the impulse to do so has seen a break to the upside or the down.

US Dollar Vs Japanese Yen, Daily Chart

That band has so far proven perhaps surprisingly resilient. Within it, in fact almost dead center, 23.6% Fibonacci retracement of the rise from August’s lows to this month’s peak is clearly providing Yen bulls with something of a test. At 108.83 it’s still very close to the market, however, and continued risk aversion will almost certainly see it give way on a daily close.

That would in turn put focus on the range base, now at 108.30, with 38.2% retracement at 107.99 all-too-likely to face a test should that give way. Still, Dollar bulls will retain reason to be cheerful as long as the range holds, even though the sort of resolve they’re going to need for another try at the top seems to be lacking at the moment.

Australian Dollar Hit by Risk Aversion, Wait for Data

The Australian Dollar is one of the more growth-correlated currencies out there so it’s hardly surprising that it should now be struggling against the Japanese Yen, and it duly is. AUD/JPY has fallen for ten of the last elevens sessions, with some especially steep daily falls clearly evident on the candlestick chart.

Australian Dollar Vs Japanese Yen, Daily Chart

The cross is back down to lows not previously seen since October 2019, with the exception of one intraday lurch lower on November 14 which can be regarded as fairly spurious.The Aussie now seems to be pretty oversold, and may find at least a temporary base within the broad band separating the current market from 72.77 region which held the market back in late September last year.

In terms of domestic fundamentals the Australian Dollar awaits official inflation data which will probably be the last major clue that market gets before the Reserve Bank of Australia meets to set interest rates for the first time this year on February 4.

The wait for that number, due on Wednesday, may keep the Australian Dollar supported but is unlikely to be enough to fully mitigate any further, risk-related slide. If AUD/JPY does head south again, a break of range support will see the lows of last October back in focus quite quickly.

Japanese Yen Resources for Traders

Whether you’re new to trading or an old hand DailyFX has plenty of resources to help you. There’s our trading sentiment indicator which shows you live how IG clients are positioned right now. We also hold educational and analytical webinars and offer trading guides, with one specifically aimed at those new to foreign exchange markets. There’s also a Bitcoin guide. Be sure to make the most of them all. They were written by our seasoned trading experts and they’re all free.

— Written by David Cottle, DailyFX Research

Follow David on Twitter@DavidCottleFX or use the Comments section below to get in touch!