FX.co ★ Risks of pandemic coronavirus are holding down financial markets (we expect a continued decrease in USD/JPY pair and an increase in gold prices)

The topic of the Chinese coronavirus remains in the focus of world markets and has a noticeable negative impact. Thus, global stock markets show a steady decline on the wave of expectations of a decline in business activity due to the threat of a pandemic of Chinese "snake" flu.

An additional negative impact on investor sentiment was also made on Monday by economic statistics from Germany and the United States. The German business climate index declined to 95.9 points in January against expectations of an increase to 97.0 points and a December value of 96.3 points. At the same time, the business expectations index also declined to 92.9 points from 93.9 points with a growth forecast to 95.0 points. The assessment of the current situation fell to 99.1 points from 98.8 points. Here, of course, the events with Chinese SARS have so far not played a significant role, instead the threats of US President D. Trump to raise import duties on European cars.

In addition, in our opinion, the general negative sentiment in the markets was supported by the negative dynamics of the US stock market, which came under pressure amid weak sales of new homes in the United States. The indicator showed a decrease in the number of new houses from 697,000 to 694,000 against the expected increase, while an increase to 730,000 was expected.

The currency exchange market reacted to economic statistics and, in general, to the situation with the "snake" flu as the demand for protective assets increased. At the end of Monday, gold, the Japanese yen, the Swiss franc and the US dollar increased in price against other currencies. Meanwhile, the yields on US Treasury bonds have fallen markedly. Thus, the benchmark yield of 10-year-old traders crashed following the results of Monday from 1.686% to 1.612% since the close of the debt market on Friday, which clearly demonstrates the departure of market players from the purchase of risky assets.

In general, observing the emerging picture, we believe that the lack of positive news on the Chinese coronavirus will put pressure on the demand for risky assets in the short term. In the currency exchange market - the safe haven currencies – the yen, the dollar and the franc will enjoy increased interest.

Forecast of the day:

USD/JPY is trading above 108.85. The continuation of negative trends in the markets will support the demand for defensive assets and maintain interest in the Japanese yen. We consider it possible to resume its sales after declining below the level of 108.55 with a local target of 107.95.

Gold on the spot also has the potential to increase to 1611.00 if it holds above the level of 1577.00.