USD/JPY: Coronavirus bearish gap breaks below 109

• USD/JPY drops in bearish gap as trader's worry for Coronavirus pandemic. 
• 108.50 is first target on the downside ahead of the Fed this week. 

USD/JPY has dropped heavily in the open, breaking below the 109 handle to print a fresh low of 108.88 as traders prepare for a risk-off week when considering the implications of the Coronavirus. 

In weekend news, heightened concerns were emanating from reports over the Coronavirus and a probable pandemic:

 Chinese Nurse: “Pay attention to what I'm saying... 90,000 infected” in emotional plea for help

The World Health Organisation headquarters in Geneva will be one to watch for the week ahead and so too will the US bond market will be a good place to start monitoring of clues as to just how serious nervous investors are turning.

Eyes on the Fed

Meanwhile, the Federal Reserve interest rate decision is coming up and the consensus surrounding the Fed is one of a neutral stance with much of the hard work gone in last year and traders are looking for a message of stability in monetary policy for now.

"The funds rate will almost certainly be left unchanged. Tweaks to the FOMC statement are likely to be minor, with policy still described as "appropriate" but with officials also still in "monitor[ing]" mode, consistent with an easing bias. We expect a 5bp rise in the IOER rate to 1.60%, with the change downplayed as just a technical adjustment."

However, the risks of a slower recovery in global growth are coming back to the fore and the US bond markets are signalling that we can expect more risk-averse positioning as traders eye up the first target of 108.50 where support meets the 200-Day moving average. 

USD/JPY levels

• USD/JPY: The dollar sickens