JPY remains unimpressed by recession threat

The Japanese currency remained rather unimpressed against the USD, in face of a recession threat as GDP rates dived deep into the negatives. The Japanese economy seems to be under increased strain as the GDP growth rate underperformed market expectations and reached -6.3% qoq on an annualized basis, an over six years low. The hit may have been caused according to some analysts also by the sales tax hike imposed by Abe’s government in October. Also, we could see the Japanese economy sliding into recession, should the next quarter (Q1, 2020) show another contraction of the Japanese economy. The overall coronavirus effect seems to strengthen such worries, which could adversely affect the Japanese economy, especially in tourism and exports. We expect the JPY to remain safe haven driven, yet should Japanese financials continue to be adverse, we could see the JPY be also a bit more data driven. USD/JPY remained on a steady sideways motion on Friday and during today’s Asian session, just above the 109.70 (S1) support line. We maintain our sideways motion bias for the pair, yet safe haven flows could alter its direction. Should the pair come under the selling interest of the market, we could see it breaking the 109.70 (S1) support line and aim for the 109.00 (S2) support level. On the flip side, should the pair’s long positions be favoured by the market, we could see it breaking the 110.30 (R1) resistance line and aim for higher grounds.

EUR remains at low levels

The common currency remained weak on Monday’s opening, as concerns about the area’s growth prospects seem to continue to drive EUR’s direction. Worries increased about a possible adverse effect on Eurozone’s economy from the fast spreading coronavirus and its effects on the Chinese economy. As per analysts the cliché that when China is sneezing, Eurozone is catching a cold, seems to be applicable at this case. Also, analysts tend to note that the sentiment on the euro is becoming clearer, with ,b>weak economic fundamentals helping to push it down. Especially given that the German economy had almost stagnated in Q4 and provided there are limited prospects for growth in Q1 the possibility of a recession seems to also loom over the Eurozone. Should the pessimistic feeling about the EUR continue to persist, we could see the common currency drifting lower. EUR/USD remained just above the 1.0835 (S1) support line, yet we maintain a bearish outlook for the pair as the downward trendline incepted since the 31st of January remains intact. Should the bears be in charge of the pair’s direction, we could see it breaking the 1.035 (S1) support line and aim for the 1.0770 (S2) support level. If the bulls take over, the pair could aim if not break the 1.0885 (R1) resistance line.

Other economic highlights today and early tomorrow

As today US and Canada are on holiday, during the European session, we get from Norway the trade balance for January, while in tomorrow’s Asian session, the minutes of the last RBA meeting are to be released.

As for the rest of the week

On Tuesday we get the UK Employment data for December as well as Germany’s ZEW indicators for February On Wednesday we get Japan’s Machinery orders for December and the trade data for January, while from Australia the wage price index for Q4 of 2019, from the UK we get the CPI rates for January, from Turkey CBRT’s interest rate decision, from Canada the inflation rates for January and late in the American session we get from the US the minutes of the last FOMC meeting. On Thursday we get Australia’s employment data for January, UK’s retail sales for January, from the Eurozone ECB’s account of its last monetary policy and in the American session the area’s preliminary consumer confidence for February. On Friday, we get Japan’s inflation measures for January, Canada’s retail sales growth rates for February and the preliminary Markit PMIs for February from Australia, France, Germany, Eurozone, UK and the US.

USD/JPY 4 Hour chart