Will the CPI Crash the USD?
The most impactful releases of this week will fill the market with volatility and sharp movements.
Coronavirus vs Forex: status update
Information is not investment advice
Stats
As of now, the number of deaths due to Coronavirus has exceeded 2000 people and the total number of infections is more than 75000 people across the continents. Most of these, obviously, are in China, where authorities are trying to counter the economic consequences of this disaster through direct financing and control. So far these measures have had limited effect and certain sectors of the Chinese economy were reported to operate at 50% capacity. With most of the countries in the world having China as a top trading partner, that will bring dire consequences.
Gold
Gold left the pulling power of $1,550 which has been holding it since the beginning of the year. Currently, a Troy ounce trades at $1,605, which, first, is above the strategic $1,600 long waited by many to be crossed, and, second, is at a 7-year high. Therefore, from the XAU/USD standpoint, Coronavirus is no little thing. Of course, $1,800 is still too early to be aimed at, but let’s remember: just a couple of months ago, in Autumn-2019 was at $1,450 – almost as far away from the current level as the latter is from the all-time highs. It will be fair to say that gold will have full ground to as high as that if the Coronavirus is not contained in the nearest future.
EUR/USD
In general, the US dollar is as great now against other currencies as EUR is unwell. In summary, the USD has both internal and external factors now supporting it, while EUR has almost all the factors against it. Currently, EUR/USD is traded at 1.0787 – that’s where it has been last in Spring-2017. 3-year low – that’s a serious case. Lower ahead, there are only supports of 1.0560 and 1.0350, left from Autumn-2016. And the facts say these are not far away.
USD/JPY
The Japanese yen finally lost its ground against the USD. That’s due to a notable economic contraction in Japan and the Coronavirus indirect impact on the Japanese economy, while the US dollar rises on strong domestic indicators and increasing flight-to-safety demand for it as a reserve currency. The sluggish uptrend market in the chart has been broken recently by an aggressive leap up. Currently, USD/JPY trades at 111.70, looking at the resistance of 112.40, which is a 1-year high. Very likely, it will be there quite soon.
USD/CNH
Against the Chinese yuan, the US dollar trades at 7.022. That’s above the critical level of 7.000, but since the last week of January that doesn’t alarm anyone more than it has already. If the crisis develops the same manner it has been during this week, do not be surprised to see the resistance of 7.0400 be broken in the nearest future.
Conclusion
The fact that people die because of the Coronavirus is a tragedy. The direct global economic damage because of the production, supply and service shortages in China is an obvious problem. But the tricky part is that the more Coronavirus is raging out there, the larger its long-term impact is going to be. So it is the accumulation effect that is hiding behind the frontlines of quarantined families in Wuhan and canceled flights to China. It will come to light, however, once the crisis is over and the victory over this disaster is announced.
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