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Coronavirus and a dovish Fed – USD/JPY with a weak weekly close?

January 31, 2020 10:00

Source: Economic Events January 31, 2020 - Admiral Markets' Forex Calendar

The Fed rate decision on Wednesday this week couldn't brighten the picture for the USD/JPY after its recent significant drop back below 110.00.

While nothing new came last Wednesday, paired with the rising expectations among market participants of a dovish Fed in the future who expect, with a likelihood of over 80%, rate cuts at least once by 25 basis points, this should keep the pressure on US yields and thus fuel our expectation of USD/JPY seeing a further drop, finding a potential first target around 107.80/108.00.

That said, any disappointment in today's data around the Personal Income and Personal Spending, resulting pressure on US yields could thus result in a bearish weekly close in the currency pair with the main focus lying on the region around 107.80/108.00.

In addition to that, USD/JPY traders should keep a close eye on any new developments on the Coronavirus which result in another wave of short-term risk-off hitting financial markets, driving US yields lower and thus USD/JPY lower, too.

Technically the region around 107.80/108.00 is activated if we get to see a drop below 108.50 while above the mode stay choppy with a neutral tendency, leaving chances of a near-term test of the region around 110.30 on the table:

Source: Admiral Markets MT5 with MT5-SE Add-on USD/JPY Daily chart (between November 20, 2018, to January 30, 2020). Accessed: January 30, 2020, at 10:00pm GMT - Please note: Past performance is not a reliable indicator of future results, or future performance.

In 2015, the value of USD/JPY increased by 0.5%, in 2016, it fell by 2.8%, in 2017, it fell by 3.6%, in 2018, it fell by 2.7%, in 2019, it fell by 0.85%, meaning that after five years, it was down by 9.2%.

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