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Markets Sold Off on Coronavirus Worries, Dollar Momentum to be Capped by Yen Strength

China’s new coronavirus overshadowed central bank activities last week and prompted global risk aversion. At the timing of writing, death toll jumped to 41 while more than 1300 people have been infected globally. The virus has already spread from Wuhan to other major cities in China, and globally to Asia, US, Australian and France. China’s massive quarantine of 40m people in the Hubei region is questioned. Though for now, WHO just declare that it’s an emergency in China, not globally. The development will be the most important market moving factor in the coming days, and even weeks.

In the currency markets, Yen ended the week as the strongest one on risk aversion, as well as falling yields. Sterling was the second strongest as traders pare back bet on BoE rate cut after improving business optimism and PMIs. Australian Dollar was the weakest one on risk aversion. Canadian Dollar suffered double-whammy from falling oil price as well as dovish BoC, which kept rate cut open. Dollar was generally strong with upside prospect for the near term. Yet, upside could be capped by falling yield and weakness in USD/JPY.

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DOW in pull back after forming a short term top

DOW dropped notably towards the end of the week as risk aversion dominated. The development suggests short term topping at 29373.62. Considering that daily MACD has closed below signal line, deeper pull back is now in favor, to 55 day EMA (now at 28324.90). But downside should be contained by 38.2% retracement of 25743.46 to 29373.62 at 27986.89 to bring rebound. Long term up trend should still be in progress. DOW should follow S&P 500 and NASDAQ to have another round of upside acceleratoin ahead.

10-year yield breaks 1.693 support, heading back to 1.429 low

10-year yield dropped notably last week, and closed below 1.693 near term support level. The developrment suggests that corrective rise from 1.429 has completed already, after failing to break through 2.000 handle twice. Deeper fall is now in f