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Yen, US Dollar Gain. Virus Pandemic Pushes Wall Street to Bear Market

Yen, US Dollar Gain. Virus Pandemic Pushes Wall Street to Bear Market

2020-03-12 00:00:00
Daniel Dubrovsky, Analyst
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Japanese Yen, US Dollar, Bear Market, Coronavirus, US Fiscal Stimulus – Asia Pacific Market Open

  • Japanese Yen soared as North American markets entered bear market
  • All eyes on President Donald Trump for details on the fiscal response
  • The US Dollar may be starting to benefit from aggressive risk aversion

Wednesday’s Wall Street Session Recap

The anti-risk Japanese Yen once again reigned supreme as North American stock markets joined their European counterparts in entering bear-market territory. That means Wall Street and the Toronto Stock Exchange have seen corrections of 20% or greater from recent peaks. In fact, the aggressive decline in the Dow Jones over the course of a month was the fastest it entered a bear market on record.

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Below are key developments that occurred over the past 24 hours amid the coronavirus outbreak:

  • The Bank of England delivered an emergency inter-meeting 50-bp rate cut
  • ECB President Christine Lagarde said the EU risks a 2008-style crisis
  • Germany’s Chancellor Angela Merkel said the country will do whatever is necessary to face the crisis
  • UK GDP was estimated now at 1.1% versus 1.4% prior for this year
  • The Federal Reserve boosted the size of overnight repo operations
  • The World Health Organization (WHO) upgraded the coronavirus to a pandemic, from an epidemic
  • Italian coronavirus deaths climbed 31% from 631 to 827 on Wednesday
  • U.S. President Donald Trump was reportedly weighing restricting non-essential travel from Europe

The markets shrugged off expectations of U.S. fiscal stimulus, where President Donald Trump hyped that payroll taxes could be waived earlier this week. A lack of details and expediency in the fiscal response may have been what prevented equities from seeing a more positive tilt, considering that support from monetary policy seems to be at its limits – as expected. Despite a valiant effort from the Bank of England overnight, the FTSE 100 ended the day -1.4% to the downside.

With the markets running out of room to price in further easing from the Fed, the haven-linked US Dollar appears to be benefiting from market turmoil. My majors-based US Dollar index extended Tuesday’s rally, particularly against the Euro. Weakness in sentiment-linked crude oil prices persisted, sparking cautious selling pressure in the Canadian Dollar.

Thursday’s Asia Pacific Trading Session

All eyes are on U.S. President Donald Trump during Thursday’s Asia Pacific trading session as markets eye details and specifics of the country’s fiscal response. He is due to address the nation at 1:00 GMT and is reportedly going to reveal measures on sick leave and a tax extension plan for the coronavirus. His comments may jawbone indexes higher, leaving the anti-risk Japanese Yen vulnerable while potentially benefiting USD.

Follow-through in stock markets will remain suspect, as has been the case lately. As such, gains in equities such as the Nikkei 225 or ASX 200 ought to be taken with a grain of salt. Meanwhile the Australian Dollar brushed off the local government announcing an A$17.6b stimulus package to help the economy from the coronavirus. It could be waiting for the response from the world’s largest economy.

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Japanese Yen Technical Analysis

My majors-based Japanese Yen index – which averages it against USD, AUD, GBP and EUR – remained within the uptrend from February. The Yen is being guided higher by rising support from the end of last month – red line below. Key resistance remains peaks from August where the currency struggled to push through at the beginning of this week. A turn lower places the focus on the 61.8% Fibonacci retracement.

USD/JPY MIXED
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of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily -6% 16% 6%
Weekly 31% 8% 16%
What does it mean for price action?
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Majors-Based Yen Index Daily Chart

Yen, US Dollar Gain. Virus Pandemic Pushes Wall Street to Bear Market

Chart Created Using TradingView

--- Written by Daniel Dubrovsky, Currency Analyst for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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