Market News & Analysis
Risk assets wobble - USDJPY
Tony Sycamore January 21, 2020 5:20 PM
Last night, I sat down to update a webinar I am presenting this evening for City Index Australia on “How to hedge an equity portfolio using CFDs” along with five reasons to do so.
The last time I presented this webinar was in September 2019, a few weeks before the U.S. and China first signalled an intent to sign a trade deal. Four months later and with markets firmly in the grip of the reflation trade, there appeared to be a lack of immediate reasons to hedge.
The most likely candidates, a re-emergence of U.S. - China trade tensions, signs of excess in equity markets, anaemic global growth and geopolitical tensions ranging from Russia – NATO conflict, North Korean sabre-rattling, to Gulf tensions resulting in oil supply disruptions.
This morning two potential catalysts have sprung to light and caught traders' attention in the Asian time zone.
The first was an overnight downgrade to global growth by the IMF. Due mainly to weakness in India, the global economy is expected to grow at 3.3% in 2020, 0.1% lower than previously forecast. The growth forecast for 2021 was trimmed to 3.4%, 0.2% lower than previously forecast. Thereby bringing into question the upswing to global growth that was expected after the U.S.- China trade truce.
The second catalyst, the confirmation that a fourth person has died in China from the Coronavirus. The World Health Organization has confirmed the virus can spread from person to person and not just from animals to humans as originally hoped for. The China health commission has given the Coronavirus the same rating as the SARs virus from 17 years ago that killed 800 people and rattled markets.
With the Bank of Japan expected to maintain the status quo at their meeting this afternoon the setup in USDJPY offers traders a potentially attractive risk-reward setup should equities continue to wobble.
After breaking above recent highs 109.70 area, USDJPY has stalled ahead of the trendline resistance at 110.30 which comes from the 2015, 125.85 high. Providing USDJPY remains below resistance at 110.30 and was then to break below 109.70 (formerly resistance now support) the risks are for a decline towards the recent 107.65 low. Conversely, should USDJPY break and close above 110.30 it would allow USDJPY to extend its recovery towards 111.50.
Source Tradingview. The figures stated areas of the 21st of January 2020. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation
From time to time, GAIN Capital Australia Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.
As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.