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Manic Macro: USD/JPY Breaks Out, Gold Toes the Line, Oil Bulls Return

Manic Macro: USD/JPY Breaks Out, Gold Toes the Line, Oil Bulls Return

2020-02-19 13:33:00
James Stanley, Strategist
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USD/JPY, Gold, Oil Talking Points

  • While a jolt has been felt through economic data around Coronavirus, a bit of optimism showed overnight when China announced a slight slowing in the spread of the virus.
  • This has helped to lift risk markets around-the-globe, illustrated in Oil prices moving up to fresh two-week-highs.
  • Fear remains, to be sure, as economic impact is still being calculated. Japan saw a big miss in machine orders (-3.5% v/s -1.2% expected) and this has helped USD/JPY to break-out to a fresh eight-month-high.

Gold Spikes Up to Seven-Year-High: Can Bulls Continue to Drive?

A scenario of extremes have started to build through a number of macro markets. The highlight and likely garnering the most attention this morning is the breakout in Gold prices as the yellow metal has moved up for a test of the seven-year-high that was set in January. I had looked into this backdrop on Friday, investigating a bullish breakout pattern in Gold that had built ahead of the weekend. But after that holiday weekend in the United States, that breakout has continued to run and price action has moved right up to that same point of resistance that held the highs last month.

Gold Eight-Hour Price Chart

Manic Macro: USD/JPY Breaks Out, Gold Toes the Line, Oil Bulls Return

Gold on Tradingview

At the source of these extreme moves has been a dose of fear emanating from the spread of Coronavirus. At this point, impact has been seen in a number of economies, including near-by Japan and Hong Kong, both major market centers that are critical in the operation of the global economy. This economic pressure produced by fear around Coronavirus has already impacted China’s economic data, and last night more proof showed up that this impact is spreading to Japan as machine orders fell by -3.5%, far beyond the expected -1.2% contraction.

This, combined with what’s discussed below, has allowed for a fresh bullish breakout in USD/JPY as buyers have pushed beyond a big area of confluent resistance. Even with the massive USD-rally that’s shown throughout February trade, USD/JPY remained subservient to this key area of chart resistance that didn’t begin to give way until last night.

USD/JPY BULLISH
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Change in Longs Shorts OI
Daily -1% 7% 2%
Weekly -1% 5% 1%
Current Retail Sentiment in USD/JPY
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The pair is currently trading at fresh eight-month-highs after pushing through the resistance zone that’s held buyers at bay for the past two-and-a-half months.

USD/JPY Daily Price Chart

USDJPY Daily Price Chart

USD/JPY on Tradingview

Overnight, the Chinese government announced that the spread of Coronavirus outside of the Hubei province has slowed, giving hope that places like Japan may see lessened impact in the future. This has helped to bring buyers back to the bid in a number of global equity indices after a pullback yesterday. But perhaps one of the more noticeable venues to observe the return of risk-on behavior has been in Oil prices, which got absolutely smashed last month as fears of a spreading virus pushed WTI crude oil prices to fresh yearly lows.

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A big zone of support was taken-out last month when oil prices crossed the 50-handle. The support zone running from 50.54-51.68 had held multiple inflections, reversing a number of aggressive sell-offs through the year of 2019. This zone even provided a bit of pause in last month’s sell-off, albeit temporarily, as bears crushed the offer down for that re-test below the 50-marker.

More recently, signs of strength have begun to emerge as a series of higher-highs and higher-lows have developed on shorter time frames. With WTI crude oil prices now bumping up to a fresh two-month-high, continuing that sequence of higher-highs and lows, there may be topside potential especially if news around Coronavirus remains on the positive side.

WTI Crude Oil Four-Hour Price Chart

WTI Crude Oil Four Hour Price Chart

Oil on Tradingview

--- Written by James Stanley, Strategist for DailyFX.com

Contact and follow James on Twitter: @JStanleyFX

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

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