Worries of Coronavirus Plague World Markets

Currency prices

As I sit at my desk this morning the first headline, I see is “Head of WHO expert team to China urges the global community to move fast in their control measures to stop the virus from spreading”.  Obviously, this is what many traders of already been thinking as stock market indices around the world have been selling off all day.  The S&P 500 is currently down 2.5% near 3250, while the  FTSE and DAX are currently down 3.4% and 3.75%, respectively. Although the motto has been “buy the dip” in stocks for the last number of years, one has to wonder if this can be the straw that breaks the camel’s back.  

Chart analysis showing S&P 500 E-mini Futures. Published in February 2020 by FOREX.com

Source:  Tradingveiw, FOREX.com

With new Coronavirus cases in Italy, fears are spreading that the virus may move further into Europe.  Northern Italy has canceled public celebrations and closed schools to try and stop the coronavirus from spreading and neighboring countries are considering closing the borders.   In addition, cases in Iran have spread and Pakistan has closed the border.  One has to consider how many unconfirmed cases there are in that region.

Gold is up another 1.8% as stocks markets have been selling off.  As we discussed in the Chart to Watch in our Week Ahead article on Friday, the target of 1720 from the longer term flag formation is now within sight!  Buyers will be looking for pullbacks towards 1650 to add to longs.  This level is near the gap fill from overnight.

Market chart of XAU to USD. Published in February 2020 by FOREX.com

Source:  Tradingveiw, FOREX.com

Interesting, USD/JPY is holding up.  Although the pair is down on the day,  with the equity sell off today one would think nicely near 111.30.  USD/JPY is only down 40 pips from today’s highs.  This may be because the GPIF still  buying and reallocating into foreign bonds.  Or, this may be from fears of the spread of the coronavirus in Japan, therefore taking away the yen as a “flight to safety”.  We may see continued buying on dips towards 110.30/50.  There is horizontal support, as well as trendline support from the long-term symmetrical triangle near these levels. 

Market chart of USD to JPY. Published in February 2020 by FOREX.com

Source:  Tradingveiw, FOREX.com

Over the next few days and weeks,  comments from officials at the WHO and CDC regarding the coronavirus will be closely scrutinized.  In addition, watch for any comments from senior government officials in Italy, Japan, South Korea, Iran, and other countries regarding the spread of the virus.  Stocks and gold will be very sensitive to these comments.

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