Fears over the coronavirus are inflating prices for safe haven assets like the Japanese Yen. The VIX fear index rose from 15 to almost 47 for the last two weeks. The Yen is one of the beneficiaries. The Japanese currency strengthened from 112.2 to 105 against the Greenback or to the almost unprecedented amount of 6.4%, which has not been seen since 2016. The market has raised a fried egg flag. Investors are inspired by the weakening US Dollar due to the interest rates cut in the United States from 1.75% to 1.25% and a further possible cut on March 18. Futures on the Target rate probabilities on Chicago Mercantile Exchange are reflecting a 100% probability for a rate cut to 0.75% this March. Such expectations are pressing the yield of the US bonds down to 0.74% from 1.68% where they stood back in February. These incentives lessen the main advantage of the US Dollar against the Yen I credit swap operations for the US assets purchases.
From the technical point of view, if the Japanese Yen dives below the 105 level, the result maybe even more strengthening of the Yen to 104.4 where an upward correction might be expected. This strong support level was tested twice in 2018 and 2019 when the peak of risk related to the US-China trade tensions was recorded.
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