USD/JPY bulls step in on optimism surrounding coronavirus

• USD/JPY bounces back to the 109 handle, reaching a high of 109.20 from a low of 108.75. 
• The threat of the coronavirus intensifies and spreads, US dollar marches on with upbeat data. 

As far as the coronavirus goes, the latest reports are that the number of known cases of the new virus rose by nearly 60% overnight. A shortage of test kits has led experts to warn that the real number may be higher. Germany, Japan and Taiwan report first coronavirus patients who didn’t visit China. However, despite the recent drop in US yields, which today have finally rallied back, with the 10-year 1.64% at the time of writing, the US benchmarks are in positive territories and its business as usual on Wall Street – a weight on the yen. 

According to the People's Daily China, "The novel coronavirus outbreak may reach its peak in one week or around 10 days, and then there will be no large-scale increases, says Zhong Nanshan, a renowned Chinese respiratory expert."

The Xinhua also reported this earlier, "Novel coronavirus outbreak may reach its peak in one week or about 10 days: expert."

US data in focus, supporting US near-term

Risk markets have steadied as confidence rose despite the worsening environment and worrying statistics, steps are being made to contain the fallout from the coronavirus. Also, the US data flow surprised on the upside. We had the US manufacturing sector in focus with poised a headline durable goods order adding 2.4% MoM in December. We also had the US consumer confidence climbing 3.4pts to 131.6 in January, "mirroring the recent wave of positive data flow for the US household sector including the lowest unemployment rate since 1969, the longest expansion on record, low inflation and close to record-high levels of job vacancies," as analysts at ANZ Bank explained. 

"These real developments are combining with extremely positive wealth effects and low debt servicing costs. Household balance sheets are strong and rising so there is little reason to expect consumption – the main driver of growth – to falter any time soon."

On the manufacturing market for the US is a focus and according to th analysts at ANZ,  "looking forward, however, there are tentative signs of improvement. "

"The Richmond Fed manufacturing index surged 25 points to 20 in January, its highest reading since September 2018. New orders rose 26 pts to 13 and the order backlog jumped 20 points to 9. Rates of capacity utilisation also picked up sharply (14 vs -12) and employment also gained (20 vs 7). The data are consistent with other regional surveys which support a manufacturing rebound following the Phase One trade deal with China."

USD/JPY levels

• USD/JPY Forecast: Further advances not clear yet