Market Brief: Nikkei 225, Hang Seng Index, Shanghai Composite Down on China Coronavirus

Risk aversion dominated market sentiment today. The Nikkei 225 closed lower by 218.9 points or 0.91% at 23,864.6. Meanwhile, the Hang Seng Index is in the red by over 750 points or 2.62% at 28,039.0. Investors are feeling jittery about the new coronavirus outbreak in China. Overnight, the World Health Organization (WHO) called for an emergency meeting for containment. It is said to have infected 200 people, resulted in 4 deaths, and has spread to at least 4 countries (Japan, Thailand, Australia, and China).

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The Shanghai Composite Index which benefitted from risk aversion yesterday, now closed lower by 43.645 points or 1.41% at 3,052.142. Pharmaceutical and mask-producing companies fueled the rally as their sales skyrocketed. However, most stocks are now in the red as investors’ concerns mount.

Risk currencies are also getting hit by negative sentiment. AUDUSD and NZDUSD are the weakest among the majors, down by 0.25% and 0.21%, respectively.

The only event scheduled for this morning was the BOJ rate statement. It did not announce any changes to its interest rate nor its asset purchase program. The central bank did, however, upgrade its growth outlook but downgraded is CPI forecast.

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AUDUSD Outlook

On the daily time frame, we can see that AUDUSD made a lower high after two consecutive higher highs. This chart pattern is what is known in forex trading as a head and shoulders chart pattern. The most recent high being lower than the first two suggests that sellers could be looking to push AUDUSD lower. A break of the neckline, which in this case is around 0.6850, could signal a sell-off in the currency pair. There is near-term support at the rising trend line at 0.6830 from connecting the lows of October 2 and November 29. The price also coincides with the 100 SMA. If support here does not hold, AUDUSD could drop all the way down to its December lows at 0.6755.

On the other hand, a rally above January 16 highs at 0.6930 would invalidate the chart pattern. This could mean that AUDUSD could make a run for its recent highs at 0.7015.

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