USD/JPY Price Dips On Coronavirus Fears

USD/JPY price has turned negative on the month on fears of coronavirus spreading outside of China. The major registered two consecutive bearish red candles on Thursday and Friday as traders prepare for potential escalation of situation in China over the weekend.

Fundamental analysis: U.S. stock market enters risk-off mode

The U.S. stock market fell on Friday amid fears of further coronavirus outbreak outside of China. The Dow Jones closed 2.1% lower, while S&P 500 followed by a 1.8% drop. Given the correlation between equities and yen, the USD/JPY moved lower as well.

“It is a wild card — I think even the experts would confirm that it’s too soon to tell,” said Richard Clarida, the vice chair of the Federal Reserve, about the potential impact of coronavirus on the economy.

In the meantime, the United Kingdom registered its first case on Friday, while the United States issued a travel advisory urging its citizens not to travel to mainland China. As a result, many major airlines have already suspended flights to and from China from February 6th.

“Based on the U.S. Department of State’s recent increase of the China Travel Advisory to a Level 4 (Do Not Travel), American is suspending its operations to and from the Chinese mainland beginning today through March 27,” American Airlines said in a statement.

So far, around 12,000 people are reported to be infected with the coronavirus, while more than 300 are reported to have died.

Technical analysis: Two key moving averages broken

Friday’s move lower has seen the price action break below two key moving averages on the daily chart. As a result, both of these levels – $108.45 and $108.72 – will now act as a strong band of resistance.

“We continue to hold the same view but the USD has to move and stay below 108.60 within these 1 to 2 days, or the odds for further weakness would diminish quickly. On the upside, the ‘strong resistance’ level remains unchanged at 109.50 for now,” says an analyst from the UOB Group.

The next layer of support is located just below the current price and we may see some buying interest there at $108.20, while $107.90 is expected to provide more support to the bulls.

Summary

The USD/JPY recorded two consecutive bearish candles to close the turbulent week on the back of growing fears of the coronavirus outbreak. The price action is now threatening to break below the $108 mark in the upcoming trading week.