Can Coronavirus Have a Meaningful Impact on the Forex Market?

Most of the headlines we see on a day-to-day basis have to do with the latest coronavirus outbreak. However, like with any other negative events, the press exaggerates both the positive and negative sides, leading to a lot of misinformation. That’s not good for us, forex traders, since we need to filter the data and figure out what’s true or not, and most important, what can have an impact on the market.

Briefings on coronavirus

At the time of writing, there are approximately 82,000 cases reported worldwide, with 78,400 of them located in China. Lately, the situation in South Korea and Italy had become concerning, but most of the other countries that have reported cases had shown limited impact, for now.

It’s interesting to note the kind of fear this outbreak triggered, even though if we compare the coronavirus numbers with flu, the contrast is staggering. Since 2020 began, approximately 80,000 people had died due to flu, while only 2,800 deaths had been recorded due to coronavirus. We must take into account that this is a new virus, with no tested treatment, and that raises some uncertainty, but based on the number, coronavirus is way less lethal than the flu.

Flight to safe-haven currencies?

Since the outbreak started to pick up steam, a flight to safe-haven currencies (in particular the yen) could be seen. Pairs like AUDJPY and CADJPY had weakened impulsively. At the same time, there was a massive inflow into the US dollar, given the USDX (the Dollar index) had broken above the 2019 high.

The flight to safety had been natural, but Yen traders should be aware of the fact that the BoJ had already shown a commitment to taking further measures in order to prevent their currency from rising too much.

Central banks and monetary policy

This leads us to the last and the most important topic – central banks. Since this is a global issue with implications for the entire world, we should expect to see global coordination from all major central banks to ease monetary stimulus, in order to compensate for the economic losses generated by the coronavirus.

It does not matter whether you use moving averages, Fibonacci levels, oscillators or other tools in order to make trading decisions. But it will be important to bear in mind the central banks’ ability to print money as much as they can in order to prevent an economic downturn.

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