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According to the World Health Organization, there have been at least 291 people infected and 6 killed by China’s mysterious new respiratory virus known as “Coronavirus”.  The virus can be spread from human to human, and currently has no treatment, which is fueling speculation of a world-wide pandemic.  The virus originated in Wuhan, the capital of Hubei province, however has since spread to other areas in China.  Airports across the world have stepped up screenings on flights arriving from China. 

Early in the Asian session, it was determined that an Australian man was tested for coronavirus after returning from a trip to China.  S&P 500 futures immediately sold of from 3323.75 down to 3312.75 on fears the virus is spreading outside of China and  Southeast Asia.  In addition, USD/JPY sold off from 110.21 down to 109.97.  Although stocks have bounced since the US session open,  the fear is apparent in the markets.  If more cases are confirmed, especially outside China, we could see risk off in the markets.

Many are comparing coronavirus to SARS back in 2002/2003, which took the lives of nearly 800 people. Risk off was the market was prevalent in the markets before the virus was under control.  There are already fears of an economic impact as China is gearing up for the Lunar New Year, which begins January 24th.  Travel is always heavy over this time period, however China’s Global Times Editor recently said that “Concerns are increasing, it is inevitable that people will cut their trips during the Spring Festival and their holiday consumption will be impacted”.

In our “Week Ahead”, we discussed how USD/JPY was already up against a large confluence of resistance on the weekly charts.  On a daily timeframe, USD/JPY is holding the Long-term trendline  resistance at 110.30 from 2015 and is currently testing the bottom upward sloping trendline from the rising wedge (again).  Although today is not over, if USD/JPY closes near or below 109.90, this would  form a bearish engulfing candle.  Support below is the strong number of recent highs at 109.50/70, and the 200 Day Moving Average at 108.59.

Source: Tradingview, City Index

If coronavirus continues to spread and send increased fears through the market, stock indices could move lower as well.  The S&P 500 is currently up against channel resistance and the Golden Fib 161.8% level from the September 2019 highs to the December 2019 lows at 3335.  The RSI continues to diverge with price, which means there is potential for a reversal soon.  Price can pullback nearly 100 handles to the bottom channel line near 3225 without breaking the upward trend.    

Source: Tradingview, CME, City Index

The next few days will be important to the markets to see if the virus spreads throughout the region (and the world).  Watch for headlines pertaining to more cases and possible deaths, especially during the heavy travel period of the Chinese Lunar New Year. 


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