Risk of a slowdown in the Chinese economy will support the demand for protective assets (EUR/USD and USD/JPY)


The main topic in the global markets remains to be the situation around the Chinese virus “corona”, which is already fully exerting a noticeable influence on the Chinese economy and which will also fully manifest itself with some time lag on the world economy.

The World Health Organization (WHO) has announced a global outbreak of coronavirus in China, which has already escaped beyond its borders, that has already led to the deaths of more than two hundred people in the most “heavenly” and some cases abroad of this country. So far, the Chinese authorities have been able to generally restrain its distribution in cooperation with neighboring countries, for example, Russia, but the risk of global spread around the world still exists.

It seems to me, what does the medical problem have to do with the situation in the financial markets? The most direct. The Chinese economy is the second, and in some ways the first, world economy. Now the celebration of the so-called “Chinese” new year is continuing there, and apparently no economic problems are noticeable, but, of course, with the end of the holiday period, it will become clear that the pandemic has a serious impact on business activity in the country, which will lead to a drop in demand for raw materials and commodity assets for production and consumption of the population of the country.

These expectations already have a negative impact on quotes for oil and industrial metals. So, for example, copper prices, an important indicator of production activity, have declined from the level of 2798 to 2535 since the beginning of this year and it seems that this is not the limit.

So far, the economic statistics do not cause serious concern and demonstrate satisfactory values, but the continuation of the pandemic will certainly damage the economy. As mentioned above, it will simply have a delayed effect. In the meantime, the data on business activity index in the manufacturing sector for January presented this morning showed only a slight decrease to 50.0 points, stopping at the “red” line, A decrease below which would indicate a slowdown in business activity in the country.

Among all the important events, we highlight the unexpected results of the meeting of the Bank of England. Although the market was expected to maintain monetary policy parameters, an unexpected statement by its head M. Carney that the economy accelerated after the December elections almost buried some investors’ hopes that the Central Bank would decide to cut interest rates in the near future. On this wave, the pound rose in a pair with the dollar to around the level of 1.3100 and added to the level of 0.8400 in a pair with the euro.

This is actually an important signal for other securities. We believe that this will lead to the decision of the RBA not to change its monetary rate. Perhaps, the Central Bank of New Zealand will also do so.

In general, we believe that the demand for protective assets and currencies, as well as gold, will continue, amid the coronavirus pandemic in China.

Forecast of the day:

The EUR/USD pair is trading at the level of 1.1020. There is a chance of a price increase to 1.1065, if data on consumer inflation in the eurozone shows growth. At the same time, a decrease in the value of the indicator will most likely lead to a decline in prices to 1.0980. In general, we consider the reduction option as preferred.

The USD/JPY pair is consolidating in a narrow range of 108.75-109.25. We expect the continuation of a prospective price decline to the level of 107.95.


The material has been provided by InstaForex Company – www.instaforex.com

Source:: Risk of a slowdown in the Chinese economy will support the demand for protective assets (we mainly expect EUR/USD and USD/JPY

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