USD/JPY Down 200 Pips In Two Days As Investors Flee To Safe Havens

USD/JPY has retreated from the multi-month highs above the $112.00 mark on the fears that the coronavirus outbreak is going to hurt the global economy and businesses more than previously anticipated.

Fundamental analysis: Risk appetite worsens

After weeks and months of preparing a push higher then finally saw USD/JPY hit a 10-month high of $112.22 on February 20. In the meantime the coronavirus outbreak to Europe has facilitated a sharp sell off on Wall Street that hit equities hard.

In a correlated move, the Japanese yen has gained against the greenback, pushing the price back towards $110. The risk is now clearly to the downside as negative headlines dominate the global discourse.

There was a fresh sell-off yesterday morning as investors followed up on the worrying headlines from Italy, where the death toll has risen to five.

Given yesterday's market behaviour and sharp sell-off in equities and high-yielding assets, the investors are obviously worried that the coronavirus outbreak will weaken the world economy further.

Technical analysis: A failed breakout

Yesterday’s sell-off, which actually started on Friday, contributed to the creation of a failed breakout. A market development of this type occurs when the price moves through a previously identified level of support or resistance, but does not have enough momentum to sustain its direction.

The failed breakouts usually lead to a sharp move in the opposite direction, which is what we are seeing here. The price action is now approaching the key short-term support at $109.80, a level which may be seen by investors as a solid opportunity to buy USD/JPY and hope for the improvement in the global risk sentiment.

Summary

A global sell-off of equities yesterday saw the Japanese Yen generate a lot of buying interest as investors flee to safe havens. The sell-off facilitated a rotation lower, as the price action now approaches key short-term support at $109.80.