CFD Markets News and Forecasts — 29-11-2021

• EUR/USD picks of bids to consolidate recent losses.
• RSI divergence hints at further upside towards breaking weekly resistance.
• 50-SMA, one-month-old descending trend line offer extra challenges to bulls.
• Sellers eye clear break of 1.1260 for fresh entries.

EUR/USD buyers flirt with the 1.1300 threshold, following a quick drop to 1.1258. In doing so, the currency major pair traces upbeat technical signals during the initial Asian session trading on Tuesday.

It’s worth noting that the EUR/USD prices diverge from the RSI conditions since November 18, signaling further advances as the quote is yet to track the bullish momentum signals.

With the bullish RSI divergence suggesting further advances of the stated currency pair, the immediate hurdle of the weekly resistance line around 1.1315 becomes imminent to be knocked down by buyers.

However, the pair’s further advances will be challenged by 50-SMA and descending resistance line from October 28, near 1.1365 and 1.1460. During the run-up, the November 11-12 lows around 1.1430 may offer an intermediate halt.

Alternatively, pullback moves will aim for 1.1260 and 1.1230 levels before directing the EUR/USD bears to the recently flashed yearly low surrounding 1.1185.

In a case where the pair sellers dominate below 1.1185, June 2020 swing low near 1.1160 and March 2020 peak close to 1.1145-50 will be in focus.

EUR/USD: Four-hour chart

Trend: Further recovery expected

US inflation expectations, as measured by the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, decline for the third consecutive day to test lowest levels since November 05 by the end of Monday’s North American session, per the data source Reuters.

In doing so, the inflation gauge eyes the monthly bottom surrounding 2.50% while flashing 2.52% level at the latest.

The fall in the inflation expectations could be linked to the market’s receding fears over the South African variant of the coronavirus after experts and policymakers reassessed Friday’s heavy risk-off action. Adding to the market optimism were the latest comments from US President Joe Biden and prepared remarks from Fed Chair Jerome Powell and US Treasury Secretary Janet Yellen.

It’s worth noting that the easing hopes of inflation and Fed’s Powell citing covid fears cut the previously hyped odds of the Fed rate hike and may weigh on the US Dollar Index (DXY), defending 96.00 level so far following a pullback from the 16-month top.

Read: Forex Today: Mood improves, dollar advances

• The Australian dollar extended to three days in a row loss amid mild risk-on market sentiment.
• AUD/JPY daily and hourly charts are tilted to the downside.

The AUD/JPY slides for the second consecutive day, though recovered some Friday’s losses, trading at 81.07 as the New York session wanes at the time of writing. On Monday, the market sentiment slightly improved. However, as the Asian Pacific session began, equity futures in Asia are tilted to the upside, except for the Chinese Hang-Seng, retreating almost 1.40%.

In the overnight session, the AUD/JPY pair traded within a 70-pip range, with no clear direction, meandering around the Monday central daily pivot. It is trading just above the central daily pivot at press time, despite the daily chart depicting a bullish flag.

AUD/JPY Price Forecast: Technical outlook

Daily chart

On Friday, the AUD/JPY pair dripped 200 pips, from 82.85 towards 80.79, breaking on its way down, crucial support levels, like the 50, 100, and the 200-day moving averages (DMA’s). That is due to the COVID-19 omicron variant, as countries closed borders, banning flights from South Africa and African countries. On Friday, the pair broke beneath the abovementioned, but as the Asian session began, the AUD/JPY opened within the bullish flag pattern on Monday The Relative Strength Index (RSI) is at 33, aims slightly flat, but as it remains below the 50-midline, the AUD/JPY has a downward bias.

In the outcome of continuing lower, the first support would be the bottom of the bullish flag around the 80.50-75 range. A breach of that level and the bullish flag would expose the November 26 low at 80.46, followed by the October 1 swing low at 79.89.

1-hour chart

On this chart, the AUD/JPY has a downward bias confirmed by the hourly simple moving averages (HSMA) residing above the spot price. Further, as the price action consolidates in a 70-pip range, an ascending wedge is forming, indicating that the pair might trade to the downside in the near term, thus negating the bullish flag pattern formed in the daily chart.

In the outcome of breaking to the downside, the first support would be the S1 daily pivot at 80.67. A breach of the latter would expose the November 26 low at 80.47, followed by the S2 daily pivot at 80.27.

• Silver prints corrective pullback from multiday low, bears keep reins.
• Sustained break of 61.8% Fibonacci retracement, weekly resistance line join bearish MACD signals to favor sellers.
• 50-DMA adds to the upside filters, yearly low can lure bears past $22.00.

Silver (XAG/USD) licks its wounds near the lowest levels since mid-October during the early Asian session on Tuesday. That said, the quote eyes to regain $23.00 by the press time.

The bright metal refreshed multi-day low the previous day after breaking the 61.8% Fibonacci retracement (Fibo.) of September-November downside. The corrective pullback could be linked to multiple supports marked since late August.

In addition to the stated key Fibo. level near $22.95, bearish MACD signals and sustained trading below the one-week-old descending trend line, as well as the 50-DMA, adds strength to the downside bias.

That said, further weakness may find multiple speed-breakers around $22.80 and $22.20 before testing the $22.00 level comprising September 22 bottom.

It should be noted, however, that the metal’s weakness past $22.00 will make it vulnerable to refresh yearly low, around $21.40 at the latest.

Meanwhile, an upside break of the 61.8% Fibonacci retracement level of $22.95 will push the XAG/USD prices towards the stated short-term resistance line near $23.15.

However, any further upside past $23.15 will be challenged by 50% Fibo. and 50-DMA levels surrounding $23.40 and $23.60 in that order.

Silver: Daily chart

Trend: Bearish

• NZD/USD holds onto the bounce from yearly low, recently picking up bids.
• Market sentiment improved as second thoughts revealed Friday’s moves as overreaction to South African covid variant.
• Biden rejected restrictive measures for now, Fed’s Powell up for citing covid challenges employment, inflation.
• China’s official PMI for November will be important to watch.

NZD/USD cheers improvement in market’s mood following a slump to refresh the yearly low around 0.6800, picking up bids to 0.6825 during early Tuesday morning in Asia.

With the global medical experts buying some time before ringing alarm on the South African covid variant, dubbed as Omicron, market sentiment improved at the week’s start. Adding to the risk-on mood were comments from US President Joe Biden and prepared testimony of Federal Reserve (Fed) Chairman Jerome Powell, as well as US Treasury Secretary Janet Yellen. Furthermore, a lenient start to New Zealand’s traffic-light system also favors the optimists, which in turn favors the NZD/USD prices.

However, comments from Atlanta Federal Reserve President Raphael Bostic and caution ahead of the week’s top-tier data weighed on commodities, which in turn challenges NZD/USD buyers.

The US National Institutes of Health (NIH) and Israeli covid expert Dror Mevorach were joined by Australia’s Health Secretary Greg Hunt to initially ease the market’s extreme fears from the coronavirus variant. The optimism gained momentum after US President Biden said, “Variant is a cause for concern, not a cause for panic,” while also adding, “lockdowns are off the table, for now.”

Following that, prepared remarks for today’s Testimony of Fed’s Powell eased concerns over the rate hike and offered additional support to the Antipodeans. Fed Chair Powell said, per Reuters, “The recent rise in COVID-19 cases along with the emergence of the new Omicron variant pose "downside risks" to employment and economic growth, and "increased uncertainty for inflation.” The same contradicts comments from Fed’s Bostic who said during the weekend that covid is the source of inflation.

It’s worth observing that US Treasury Secretary Yellen also placates market pessimism while pushing Congress to overcome the US debt limit deadlock, as well as highlighting the strength of the US economy.

Furthermore, New Zealand’s new COVID-19 Protection Framework, known as the traffic light system, comes into effect on Friday and has initially put most country parts in the Orange zone, with mild restrictions, except for North Island. Additional support measures to help businesses battle the activity restrictions also back the NZD/USD bulls.

Amid these plays, stocks in the US and Europe recovered, after mildly bid Asian equities, whereas US 10-year Treasury yields regains 1.5% status and underpinned the US Dollar Index (DXY) to consolidate Friday’s losses.

Moving on, New Zealand’s monthly sentiment numbers from Australia and New Zealand Baking Group (ANZ) may entertain NZD/USD traders. However, major attention will be given to China’s official NBS Manufacturing PMI and Non-Manufacturing PMI for November, expected 49.6 and 53 versus 59.2 and 52.4 in that order. Above all, virus updates and testimony by Fed’s Powell, as well as Yellen, will be crucial to watch.

Technical analysis

NZD/USD keeps the rebound from the 0.6800-0.6790 support zone, where 61.8% Fibonacci retracement (Fibo.) level of June 2020 to February 2021 upside joins multiple levels marked during September and November 2020. However, a sustained trading below the 17-month-old support line, now resistance around 0.6900, keeps pair sellers hopeful.

“Failure to deal with debt limit would 'eviscerate' us economic recovery,” said US Treasury Secretary Janet Yellen during her Prepared remarks to Senate banking committee testimony, per Reuters.

“Cannot overstate importance for congress to deal with us debt limit,” adds Treasury Secretary Yellen.

Additional comments

FX reaction

Given the latest recovery in market sentiment, backed by easing fears over the South African variant of the coronavirus, dubbed as Omicron, Yellen’s comments seem neutral and were reacted with little action.

Read: Fed's powell: Inflation will linger well into next year

• AUD/USD bulls have moved in at the start of the week, price correcting the daily bear trend.
• Bulls eye 0.7170 old daily support and 50% mean-reversion targets.

AUD/USD has found solace in world leaders who are sounding optimistic that they can deal with the Omicron variant. As such, it has done little to impact Fed tightening expectations so far which is supporting the greenback. 

However, sentiment in markets has been helped by the WHO; while urging caution, the organization noted that symptoms linked to the new strain so far have been mild.  This gives the Aussie a much-needed boost as well. Additionally, Moderna added to the positive sentiment by predicting it would have a modified vaccine ready by early 2022.

On the charts, the outlook is bullish in so far that a correction would be expected so long as the price remains above water and 0.7100. 

On a break of 0.71, other hand, then bears would be expected to pile in towards 0.7030 weekly structure. 

Federal Reserve Chair Jerome Powell, in testimony prepared for delivery Tuesday at the US Senate Banking Committee, and released Monday by the Fed, said that he continues to expect high inflation to recede over the next year as supply and demand come into better balance, but warned that prices could continue to rise for longer than earlier thought.

"It is difficult to predict the persistence and effects of supply constraints, but it now appears that factors pushing inflation upward will linger well into next year."

"In addition, with the rapid improvement in the labor market, slack is diminishing, and wages are rising at a brisk pace."

The recent rise in COVID-19 cases along with the emergence of the new Omicron variant pose "downside risks" to employment and economic growth, and "increased uncertainty for inflation," Powell added.

The Fed, Powell promised, "is committed to our price-stabilty goal" will use its to support the economy and the labor market but also to prevent any upward spiral in inflation.

Key comments

• Factors pushing inflation upward will linger well into next year - prepared testimony to senate banking committee.
• Inflation running well above 2% goal, pushed up by pandemic-related supply and demand imbalances
• continue to expect inflation will move down significantly over the next year.
• We will use our tools to support economy and strong labor market, and to prevent higher inflation from becoming entrenched.
• Economy continues to strengthen.
• conditions in labor market have continued to improved.
• Still ground to cover to reach maximum employment, expect progress to continue.
• Slack is diminishing in the labor market.
• Rise in covid cases, omicron variant pose downside risks to employment, increased uncertainty for inflation.

Market implications

This is supportive of the US dollar that is likely to outperform from both a risk-off profile and due to the divergence between the Federal Reserve and those central banks of other nations where growth is lagging the US.

• The shared currency slides on Monday as market sentiment improves, as COVID-19 omicron variant worries ease.
• Broad US Dollar strength across the board, weighing on the EUR/USD pair.
• EUR/USD sellers, to resume the downward move, will need to break below the 200-hour SMA at 1.1271.

On Monday, the EUR/USD grinds lower during the New York session, trading at 1.12880 at the time of writing. Since the beginning of the Asian session, the shared currency edged lower as market sentiment improved on the back of positive news from South African health authorities. The greenback advances against most G8 currencies in the FX markets, except for the AUD and the CAD.

Friday’s price action was exacerbated by COVID-19 omicron news in conditions of thin liquidity after the observance of Thanksgiving. Furthermore, World Health Organization (WHO) authorities sounded the alarm with some countries banning flights from South Africa and some African countries. That would last unless scientists could prove that although highly transmissible, the new variant is not as dangerous as the delta. Until that news arrives, market participants will remain cautious, waiting for further information.

That said, the USD weakened across the board, with the US Dollar Index closing near the psychological 96.00, as investors scaled back bets that the Federal Reserve would hike rates three times in 2022, as money market futures have priced in just two increases, pushing the third one until 2023. That is due to assessing what the new coronavirus variant impact would be on the global economy.

Meanwhile, on Monday, the USD recovered some ground against the shared currency. Early in the Asian session, the EUR/USD broke below the 1.1300 figure, printing a daily low nearby the 50-hour simple moving average (HSMA) at 1.1258, though in the last couple of hours jumped above the 50 and the 200-HSMA, at current levels.

On the economic docket, the Eurozone unveiled the HICOP for Germany for November, which rose by 6%, higher than the 5.4% estimated. Meanwhile, across the pond, the US Pending Home Sales for October on a monthly basis increased by 7.5%, higher than the 1% expected.

EUR/USD Price Forecast: Technical outlook    

In the 1-hour chart, the EUR/USD remained subdued, failing to gain traction further to the downside. Also, the low-yield status of the EUR helps it attain a “safe-haven” status, despite usually not being one of them, like the JPY, the CHF, and the greenback. That put a lid on the downward move, near the 50 and the 200-hour simple moving averages (HSMA’s), which acted as dynamic support.

However, to resume the downward bias observed in a higher time frame like the daily chart, USD bulls would need to push the pair below the 200-HSMA.
In that outcome, the first support would be the S1 pivot point at 1.1238. A break below the latter would expose the November 26 swing low at 1.1204, followed by the S2 pivot point at 1.1158.

On the other hand, the daily central pivot point at 1.1285 would be the first resistance. A breach above that level would expose crucial supply zones, like the 1.1300 figure, followed by the R1 resistance at 1.1365.

• CAD/JPY is under pressure as bears move in for a test of 89 the figure. 
• The price is carving out a bearish formation on the hourly chart that can be executed on lower time frames. 

The yen is a top performer due to the uncertainty surrounding the coronavirus and how central banks intend to deal with the dire implications for their domestic economies. The yen is renowned as a safe haven currency which gives it an edge, especially over the high beta and commodity currencies, such as the Canadian dollar.

However, regardless of the fundamentals pertaining to the threat of the new coronavirus variant, the technical picture leans with a bearish bias, albeit within a trapped environment. The following illustrates this environment in a top-down analysis and arrives at a short term bearish thesis.

CAD/JPY daily chart

Firstly, from a daily perspective, the price is testing demand territory from which would be expected to hold on to initial tests throughout the week and potentially carve out a correction. The 50% mean reversion has a confluence of prior lows near 89.80. A break there will look for a test of 90 the figure and this would open risk towards a 61.8% golden ratio target of near 90.20.  On the other hand, the 89.50 could guard such a retracement where the 38.2% Fibonacci retracement is located.  

Meanwhile, however, there could be a shorter-term opportunity on the lower time frames as follows:

CAD/JPY 4-hour chart

From a 4-hour perspective, the price is carving out a symmetrical triangle at the bottom of a strong bearish impulse which is regarded as a continuation chart pattern. So the bias is to the downside and traders will be on the look out for a break of the dynamic support. 

CAD/JPY hourly chart

The hourly chart shows that the price is being resisted below 89.20 and following a 50% mean reversion of the latest bearish impulse, albeit with a sideways consolidation. This makes for a higher risk profile of the market structure, but bearish nevertheless for intraday scaling opportunities to the downside.  

CAD/JPY 15-min chart

The price has been rejected at the counter trend line on the 15-min chart, so the bears will be preparing to short below the support around 89.02. This can also be executed on the 5-min time frame as follows:

CAD/JPY 5-min chart

The failed inverse head and shoulders pattern is encouraging and a break of the 21-EMA again will raise prospects of a break of the support. Bears would expect that level to then work as resistance on a restest from which the price could deteriorate within the sideways hourly channel towards 88.80 or lead to an outright breakout of the 4-hour symmetrical triangle towards 88.30/40. 

• USD/CAD tried to test last week’s highs at 1.2800 earlier in the session, but have since fallen back towards 1.2750.
• Oil prices fell back from their earlier highs, making it difficult for CAD to recoup recently lost ground versus USD.

USD/CAD flirted with last Friday’s multi-week highs close to 1.2800 in earlier trade, but the pair has since backed off and is now trading around the 1.2760 mark with very marginal on the day losses of around 0.1%. That means the pair is close to the centre of its recent 1.2730-1.2800 intraday ranges, though is still some way above last week’s lows under 1.2650. To recap, the pair rallied more than 1.0% last week as crude oil prices tanked amid fears about the impact that the global spread of the Omicron Covid-19 variant would have on demand. Indeed, those gains all came last Friday in tandem with WTI prices tanking nearly $10 to under $70.00.

Oil prices attempted a rebound on Monday, but as the US session drew on, oil prices gradually found themselves coming under more selling pressure again. WTI nearly went as high as $73.00 prior to the US open but has slipped back under the $70.00 level and its 200DMA again ahead of the close. Whilst WTI is still set to finish the session about 2.0% or just under $1.50 higher, the erosion of earlier gains has made it difficult for the loonie to regain some recently lost ground versus the US dollar.

There was some focus on Canadian data earlier in the session; the Canadian Current Account in Q3 2021, released at 1330GMT, was significantly weaker than expected at C$ 1.4B versus expectations for C$ 4.6B, weighing on the loonie at the time. Industrial Product and Raw Material Price data was also released at 1330GMT. As usual, it didn’t move markets, but the data is quite alarming. Raw Material Price inflation rose to 38.4% in October following a 4.8% MoM rise on the month, while Industrial Production Price inflation came in at 16.7%, after a 1.3% rise in October. While both YoY rates of inflation have been higher at other points during the year, both are historically elevated.

Looking ahead to the rest of the week, the focus will mainly be on Fedspeak and US data (November ISM surveys and the official November jobs report), though the November Canadian jobs report on Friday will also be worth watching. Perhaps more important than the calendar scheduled events, however, will be developments on the Omicron variant front. Market participants eagerly await more information on the strain’s 1) transmissibility, 2) severity of sickness, 3) ability to avoid the existing vaccines and treatments. Only once this information is clearer can market participants may well informed adjustments (if any are required) to their economic/central bank policy forecasts. As a result, markets are likely to be very headline-driven.

What you need to know on Tuesday, November 30:

Fears receded on Monday after panic dominated financial markets on Friday when stocks markets collapsed following the announcement of a new covid variant discovered in South Africa named Omicron. However, the market’s reaction may have been exacerbated by thin market conditions due to the Thanksgiving holiday in the US.

Anyway, up to today, the market knows little about the new strain. However, Pfizer announced its testing its vaccine on a new variant, while Moderna announced it would have a new shot ready for early on 2022 if needed. Also, US President Joe Biden made a press conference to update the country on the matter. Biden said that the new strain is of concern but should not trigger panic, adding that lockdowns are not required at the time being.

Stocks fell in Asia, but European and American indexes posted gains, reflecting the better mood. US government bond yields ticked higher, with the 10-year Treasury note yielding 1.53% ahead of Wall Street’s close.

European Central Bank (ECB) governing council member Pablo Hernandez de Cos said this Monday that European policymakers aim to avoid the premature tightening of the monetary policy, repeating that high inflation could be expected to be transitory, despite being stronger and more persistent than anticipated a few months ago. German inflation printed at 6% YoY in November, according to preliminary estimates.

The greenback trades mostly higher against its major rivals, although volatility was limited. The EUR/USD pair trades around 1.1260, while GBP/USD is below the 1.3300 threshold. USD/CAD is at 1.2760, while the AUD/USD pair is close to the year low at 0.7105. Safe-haven currencies bounced modestly, with the USD/JPY pair now at 113.80.

Gold edged modestly lower after flirting with the 1,800 level, now trading at around $1,782 a troy ounce. Crude oil prices also ticked lower, with the barrel of WTI currently at $70.40.

XRP price on edge of cliff as Ripple faces imminent collapse

• Gold struggles in the region of the $1,780 support area as the US dollar picks up a bid. 
• US yields are higher as fears of the Omicron impact are dialled back. 

Gold is resuming the downside, although it could be carving out a trendline to the upside in what appears to be a dynamic support line. However, a meaningful break lower from here will likely invalidate that technical argument which makes today's lows near $1,170 important for the week ahead. At the time of writing, the yellow metal is trading $1,784 and down some 0.5% so far. The price fell from a high near the psychological $1,800 as the US dollar firmed and risk sentiment recovered.

The markets are weighing how severe the economic impact would be from the Omicron coronavirus variant which is so far balanced following last week's market sell-off. The major risk-off theme supported the gold price momentarily but a semblance of calm returned to world markets. US Treasury yields and the US dollar have climbed while US stocks are back in the green which is weighing on the gold price. 

World leaders are sounding optimistic that they can deal with the Omicron variant and as such, it has done little to impact Fed tightening expectations so far which is supporting the greenback. Sentiment in markets has been helped by the WHO; while urging caution, the organization noted that symptoms linked to the new strain so far have been mild.  Additionally, Moderna added to the positive sentiment by predicting it would have a modified vaccine ready by early 2022.

As a consequence, the US ten-year yield is up 3.31% and that is helping the greenback to recover. After two straight down days, DXY is trading higher near 96.445 the high for the day so far after finding support near 96. Gold traders will be keeping an eye out for another test of last week’s high near 97 and then the June 2020 high near 97.802 will be in focus.

However, markets are on edge due to the uncertainty of what is a very fluid situation and traders will be scouting out for more news on the matter. As such, the safe havens will likely hold up for the tie being, although rallies could well be faded so long as the optimists stay in play. 

Fed speakers will be important

This puts Fed speak this week high up on agenda for gold traders.  We will hear from Fed’s John Williams, chairman Jerome Powell, and Michelle Bowman. Last Friday, Raphael Bostic played down the risk of the omicron variant. He said that is hopeful that the momentum of the US economy will carry it through the next wave of the coronavirus pandemic and that he remains open to accelerating the pace of the central bank's bond taper. 

If the new Omicron coronavirus variant follows the pattern seen with previous variants, it should cause less of an economic slowdown than the Delta variant, Bostic said. "We have a lot of momentum in the economy right now," Bostic said during an interview with Fox News, citing strong jobs growth. "And that momentum, I'm hopeful, will be able to carry us through this next wave, however, it turns out." Other central banks have also been optimistic, such as the Reserve Bank of New Zealand. 'Chief Economist Ha said that the new variant would have to have a dramatic economic impact to prevent the bank from continuing to hike interest rates. 

Gold technical analysis

The daily chart is carving out dynamic support that is coming under pressure.

The 4-hour chart indicates to be long above $1,810 and short below $1,780 and again below $1,770. Between these levels, traders will be at risk of whipsaw price action and sideways consolidation. From a shorter-term perspective, the 15-min chart indicates to be long above 1,785 to target between 1,791 and 1,795.

• The New Zealand dollar slides, despite reclaiming the 0.6800, as the market assesses the impact of the omicron variant.
• COVID-19 omicron variant causes “mild” symptoms, according to SA health authorities
• Fed policymakers would like to increase the pace of the bond taper, according to FOMC’s last meeting minutes.

During the New York session, the New Zealand dollar continued its free fall versus the greenback, reaching a new year-to-date low at 0.6787, though it bounced off that level, trading at 0.6804 at press time. The market sentiment is upbeat at the time of writing, as major US equity indices print gains between 0.92% and 2.32%, amid COVID-19 omicron variant woes, seem to fade on the back of positive news from South African health authorities. 

COVID-19 omicron variant causes “mild” symptoms, according to SA health authorities

According to the Telegraph, the South African Medical Association chair Angelique Coetzee called symptoms associated with the variant at this point “different and so mild” compared with others she treated in recent months.  She was asked that if authorities worldwide were panicking unnecessarily, Coetzee said, “yes, at this stage, I would say definitely,” as she confirmed not admitting anyone to the hospital with the new variant. 

That said, it seems that investors are assessing current COVID-19 news, with what the World Health Organization(WHO) has to say about it. On Monday, the financial markets seem to have stabilized after Friday’s collapse.

Putting this aside, the NZD/USD has been trading downwards, attributed to the Reserve Bank of New Zealand (RBNZ), disappointing market participants, who were expecting a rate hike of 50 basis points in the Overnight Cash Rate (OCR) on its last meeting. Furthermore, the last Wednesday, the FOMC’s last meeting minutes showed that Fed policymakers would like to increase the pace of the QE’s reduction so that the US central bank could have room to maneuver in the case of inflation stating elevated. That firmly reinforced USD strength against the NZD, which has been adrift since RBNZ’s last meeting.

In the meantime, the US Dollar Index, which tracks the buck’s performance against a basket of six rivals, advances 0.26%, sitting at 96.33, acting as a tailwind for the US dollar.

Meanwhile, analysts of Brown Brother Harriman noted that RBZ chief economist Ha said that “the new variant would have to have a dramatic economic impact to prevent the bank from continuing to hike interest rates.  He added that the bank would have hiked last week even if omicron was known then, stressing it’s not the same as August when RBNZ delayed a hike due to a just-announced lockdown.”

That said, the fall on the NZD/USD could be viewed as an opportunity for NZD bulls to open fresh bets, as the RBNZ is looking forward to hiking rates again, faster than the Federal Reserve.

• USD/JPY rebounded on Monday to the upper 113.00s from previously just above 1.1300.
• The bounce is in tandem with a rise in longer-term US yields, though USD/JPY remains well off last week's highs.

USD/JPY has seen a solid rebound on Monday, bouncing from earlier session (and last week’s) lows around 113.00 to session highs in the upper-113.00s, where is continues to trade midway through the US session. A brief dip below the 50-day moving average, which currently resides at 113.13, earlier in the day was used as a dip-buying opportunity. For now, though, selling pressure ahead of the psychologically important 114.00 level and the 21DMA just above it is preventing any further gains. Thus, while the pair does trade higher on the day by about 0.4%, USD/JPY remains about 1.5% below last week’s highs around 115.50.

The main reason for the pair’s rebound on Monday, as well as the main reason why it still remains some ways below recent highs, has to do with its tight correlation to US bond yields. The 10-year yield has bounced well since hitting its 200DMA At 1.48% last Friday and is on Monday trading well back to the north of 1.50%. But at 1.525%, that still leaves it some 16bps below last week’s pre-Omicron highs just shy of the 1.70% mark. Recall that market sentiment took a sharp turn on Friday as fears about the newly discovered, highly transmissible and potentially vaccine-resistant Omicron Covid-19 variant emerged. That saw markets dial back aggressively on their Fed rate hike bets, which encouraged investors to pile into bonds for their safe haven properties, as well as on the expectation of lower for longer.

Markets have been somewhat reticent to rebuild these Fed hike expectations back on Monday, despite the more risk-on market tone and early signs out of South African that those ill with the new variant (so far) are showing mild symptoms. The implied yield on the December 2022 eurodollar future (a proxy for where markets think the Fed funds rate is going to be) remained around 0.9% on Monday, having dumped from its pre-Omicron highs around 1.08% last week.

Caution makes sense. Fed Chair Jerome Powell is scheduled to speak at 2005GMT. Then, the rest of the week is packed with Fed-related risk events such as plenty more Fed speak (including a two-day testimony where Powell appears before Congress given his recent renomination) and US ISM and jobs data. As is typically the case, USD/JPY has not been to responsive to domestic Japanese news. Japan reportedly is set to ban the entry of all foreigners by the end of the month. Meanwhile, Retail Sales data there for October was broadly in line with expectations and showed a sluggish YoY pace of growth.

• AUD/USD corrects but the focus is on the downside.
• There is a risk of a break below 0.7110 for the days ahead. 
• Coronavirus is driving risk sentiment while Fed speakers will be keenly watched.

AUD/USD is trading at 0.7130 and between a range of 0.7159 and 0.7113 as the price corrects from daily lows. However, the recent news cycle around the focus on the Omicron variant suggests that mobility divergence and reopening strategies will shift back on the radar screen for AUD traders this week as cases are detected locally. This leaves a downside bias on the higher-yielding commodity currencies. 

Australia has already paused plans to reopen its borders to some foreign nationals amid fears over the new Covid variant. The nation was due to allow vaccinated skilled migrants and international students entry from 1 December. But Prime Minister Scott Morrison said a delay of a fortnight was "necessary" following Omicron's discovery.  However, Australia, which has so far found five Omicron infections among travellers arriving in the country, has not announced rolling back any of the restrictions it had already eased earlier this month.

The omicron variant has done little to impact Fed tightening expectations so far, but it is bound to affect consumer confidence which has been known to impact the US dollar at times of despair. Nevertheless,  sentiment has been helped by the WHO; while urging caution, the organization noted that symptoms linked to the new strain so far have been mild.  Additionally, Moderna added to the positive sentiment by predicting it would have a modified vaccine ready by early 2022. As a consequence, global equity markets are higher, as are global bond yields. The US ten year yield is up 3.31% and that is helping the greenback to recover. 

After two straight down days, DXY is trading higher near 96.445 the high for the day so far after finding support near 96.  Forex traders will be keeping an eye out for another test of last week’s high near 97 and then the June 2020 high near 97.802 will be in focus. In this regard, the bias is tilted to the downside for AUD/USD and for a continuation below daily support near 0.7110. This, however, will depend upon the Federal Reserve's tightening expectations.

Central bank speak is key

This makes Fed speak high up on the watchlist for the week ahead where we will hear from Fed’s John Williams, chairman Jerome Powell, and Michelle Bowman. Last Friday, Raphael Bostic played down the risk of the omicron variant. He said that is hopeful that the momentum of the US economy will carry it through the next wave of the coronavirus pandemic and that he remains open to accelerating the pace of the central bank's bond taper. 

If the new Omicron coronavirus variant follows the pattern seen with previous variants, it should cause less of an economic slowdown than the Delta variant, Bostic said. "We have a lot of momentum in the economy right now," Bostic said during an interview with Fox News, citing strong jobs growth. "And that momentum, I'm hopeful, will be able to carry us through this next wave, however it turns out."

However, ''the added uncertainty is likely to keep the bar fairly high to a faster taper,'' analysts at Brown Brothers Harriman argued. ''Odds of Q2 liftoff have risen back to nearly two thirds, which we think is way too aggressive.  That said, we believe that the monetary policy outlook continues to favour the dollar over the euro, yen, and Swiss franc.  None of those central banks are likely to hike rates until 2023 at the earliest and so the 2-year yield differentials should continue to move back in the dollar’s favour this week after plunging last week.'

It is worth noting that the Reserve Banks of New Zealand hase also downplayed omicron risks.  The analysts at BBH noted that ''Chief Economist Ha said that the new variant would have to have a dramatic economic impact to prevent the bank from continuing to hike interest rates.  He added that the bank would have hiked last week even if omicron was known then, stressing it’s not the same as August when RBNZ delayed a hike due to a just-announced lockdown.''

Given the divergence between the Reserve Bank of Australia to that of the Fed and RBNZ and also considering how fluid of a situation this new variant is, the uncertainty will be a weight on both AIUD/NZD and AUD/USD/ AUD/JPY is also regarded as the forex market's risk barometer due to the Aussie's high beta nature and the yen's safe-haven qualities, so this cross is also biased tot he downside. 

• GBP/USD slipped under 1.3300 in recent trade and is eyeing year-to-date lows.
• The pair has been weighed by concerns about an Omicron outbreak in the UK.

Sterling has been under pressure during US trading hours, pulling back from earlier session highs above 1.3350 to fresh session lows under 1.3300. That leaves the pair only a few pips above annual lows printed last Friday at 1.3278. Recent weakness could be a reflection of fears that the Omicron Covid-19 variant, multiple infections of which have now been picked up across the UK, poses downside risks to the UK’s economic recovery this winter.

The government advised citizens over the weekend that masks would be required in indoor spaces once more and that social distancing was encouraged. Meanwhile, the UK’s health minister seemed to hint that any potential lockdown restrictions, which have not yet been taken off of the table, would be linked to hospitalisation rates. An FT article, which claimed that analysts think the impact of Omicron on the UK economy will be minimal, has been broadly ignored.

More broadly, the fact that the US dollar has been picking up amid a rise in long-term US government bond yields (long-term UK yields have seen a much more modest rise on Monday) is weighing on the pair. The tone of US President Joe Biden in a press conference on Omicron was relatively upbeat/glass half full. The variant is concerning, but not a cause for panic, the vaccine is still expected to protect, as are masks and lockdowns are off the table, for now, was the general message and it seems to have boosted US equities, which could be aiding the dollar also.

• The market sentiment has slightly improved, though it failed to lift silver prospects, which fell to a seven-week low.
• The US Dollar Index advances 0.32%, sitting at 96.39, following the US 10-year Treasury yield footsteps, up to 1.514%.
• XAG/USD Technical outlook: Failure to reclaim last’s Friday low at $22.89 could send silver tumbling towards $22.32.

Silver (XAG/USD) spot extends last week’s Friday decline, trading below the former low at $22.84 during the New York session at the time of writing. Market sentiment has improved, throughout the weekend, after Friday’s turmoil in the financial markets. According to South African health authorities, the COVID-19 omicron variant, although it has more mutations than the alpha and the prevailing delta variant and seems to spread more quickly, causes mild symptoms in young and healthy people.

On Friday's COVID-19 omicron variant news, spurred silver's fall below $23.00

Despite the abovementioned, the white metal keeps extending its downfall, after collapsing more than $0.80, on COVID-19 omicron variant news, amid broad US dollar weakness. At press time, the story is different, with the greenback advancing 0.32%. The US Dollar Index that measures the greenback’s value against its peers sits at 96.39.

US bond yields lick their wounds in the bond market after posting heavy losses in the last week. The US T-bond 10-year benchmark note rises three basis points, sitting at 1.514%, while the US10-year Treasury Inflation-Protected Security (TIPS) rises to -1.06%, weighing on precious metals prices, like silver and gold.

In the US macroeconomic docket, Pending Home Sales for October on a monthly basis rose by 7.5%, higher than the 2.3% drop witnessed in September. On a yearly basis, for the same period, it shrank 1.4%, better than the 8% contraction in the last year.

Later the US economic docket will feature the Federal Reserve Chairman Jerome Powell, at 20:05 GMT, who could offer fresh impetus to commodity traders, amid cautious market sentiment surrounding the financial markets.

XAG/USD Price Forecast: Technical outlook

Silver in the 1-hour chart depicts the white metal has a downward bias, as the hourly simple moving averages (HSMA’s) with a downslope reside well above the spot price. At press time, it is trading below the November 26 low at $22.90, as XAG/USD sellers are pushing prices towards a daily low below the S1 pivot point at $22.75.

In the outcome of XAG/USD extending its free fall, the first support would be the S2 pivot point at $22.42, followed by the October 12 daily swing low at $22.32.

On the other hand, the psychological $23.00 would be the first resistance. A breach of the latter would expose the central daily pivot point at $23.23, followed by the 50-HSMA at $23.39.

US President Joe Biden said in a speech on Monday that, for now, lockdowns are off the table as there would be no need if people get vaccinated and wear the mask. Asked whether he expects additional travel curbs, he said none were needed for now and, asked whether this would be the new normal for the US, he said he did not think so. 

Market Reaction

FX markets have not seen much of a reaction to Biden's remarks, but the statement that lockdowns are off the table, for now, could be lending some support to the equity complex, with the S&P 500 recently pushing to fresh session highs in the 4660s.  

US President Joe Biden, in a White House speech to the public on the Omicron variant, said that while the variant is a cause for concern, it is not a cause for panic. Biden urged that the best protection against the vaccine is to get fully vaccinated, and, if already fully vaccinated prior to June 2021, to get the booster shot as well. Biden also asked that the American people wear masks again in indoor settings. 

President Biden added that the White House is working with vaccine makers to develop a new variant-specific booster shot if it is needed. Biden said that he would announce a new plan to fight Covid-19 this coming winter that would not include lockdowns. 

Asked about the travel restrictions on South Africa, Biden said the restrictions were necessary to buy Americans more time to get prepared/vaccinated, given that the Omicron variant is expected to spread around the world anyway. 

Market Reaction

FX markets have not seen any reaction to Biden's comments, which did not contain much by way of any surprises. 

• Mexican peso flat on Monday versus US dollar after falling during seven days in a row.
• USD/MXN far from 22.00, above 21.60.
• Technical indicators turn south from overbought readings.

The USD/MXN is trading marginally lower on Monday, on what could be the end of a seven-day positive streak. Last week, the Mexican peso tumbled on domestic and international developments, with the cross reaching the highest intraday level at 22.15.

It pulled back under 22.00, finding support around 21.65. The main trend and the bias point to the upside. In the short-term technical indicators favor some consolidation ahead, as RSI and Momentum are turning south from overbought levels.

A retreat is seen finding support initially at 21.65 and below at 21.50. If price drops under 21.50, it could alleviate the bullish pressure. Below, the next strong support is located around 21.00.

On the upside, if USD/MXN rises above 21.90, it could likely rise further to test 22.00. The next medium-term resistance area is 22.20 that should hold, at least at the first attempt. A firm break higher, would clear the way to more gains, triggering more volatility.

USD/MXN daily chart

• EUR/USD has spent Monday’s session ebbing lower after losing its grip on the 1.1300 level.
• Some strategists saw Friday’s big move higher as overly excessive.

EUR/USD has spent the majority of Monday’s session gradually ebbing lower, with the pair now trading close to session lows in the 1.1260s, having opened Monday trade above 1.1300. On the day, the pair is now down close to 0.5%. The move lower is in fitting with a broader reversal of last Friday’s big moves seen across asset classes. For FX markets, that means the US dollar has been picking up, with those gains concentrated most heavily against the currencies it lost out to the most on Friday.

Recall that panic over the emergence of the highly transmissible and potentially vaccine-evading Omicron variant roiled global markets at the end of last week, triggering a combination of risk-off and an unwind of hawkish central bank bets. For USD, this meant it got battered against the euro, yen, and Swiss franc as Fed rate hike expectations for 2022 were dialed down, while the movement in rate hike expectations for the ECB, BoJ, and SNB wasn’t much changed. That’s because markets hadn’t been expecting much by way of rate hikes from these central banks anytime soon anyway!

The opposite trend is being observed for the most part on Monday, with the dollar paring back on some of its recent losses against both the euro and yen. Some FX strategists touted last Friday’s moves in FX markets and Fed rate hike expectations as overly exaggerated and some seem to have seen Friday’s dip as a dollar buying opportunity. Indeed, if the global economy is about to be rocked by a newer, nastier Covid-19 variant, then buying USD for its safe-haven purposes likely makes sense. With respect to EUR/USD then, the recent bounce may well prove to be have been a great opportunity to reload short positions.

• The USD/CHF bounced off Friday’s daily lows around 0.9210 as the new coronavirus variant worries ease.
• Friday’s flight to safe-haven assets boosted the prospects of the CHF and the JPY, leaving adrift the greenback.
• USD/CHF Daily pivot point at 0.9271, found sellers around that area, pushing the pair towards 0.9230s.

After losing more than 100 pips on last week’s Friday, the USD/CHF trims some of those losses during the New York session, trading at 0.9248, bouncing off 0.9210s daily lows at the time of writing. The market sentiment has improved, as omicron COVID-19 variant worries scale back after last Friday’s collapse in the financial markets.

Information throughout the weekend has the USD/CHF subdued. Headlines that crossed the wires on Friday about the new COVID-19 variant spurred a flight to safe-haven assets, benefitting the Japanese yen, the euro, and the Swiss franc, based on its status of low-yielders. That hurt, the greenback, in the crosses against the Yen and the Swiss franc, in the latter collapsing 130 pips in the Friday’s session.

That said, initial reports from South African doctors suggest the variant is associated with milder symptoms than other COVID-19 variants though it appears to be more transmissible. However, Monday’s price action seems to reflect that investors are cautious, awaiting more clarity regarding the omicron’s ability to evade vaccine-induced immunity and the severity of its illness.

Hence, in the near term, as most of the financial assets as of today, USD/CHF traders would lean in pure risk-market sentiment and central bank speakers, leaving on the side macroeconomic data as investors assess the impact of the new variant.

USD/CHF Price Forecast: Technical outlook

The USD/CHF 1-hour chart depicts the pair’s downward bias in the near term, as the hourly simple moving averages (HSMA’s) reside well above the spot price, with a downslope, and will act as dynamic resistance levels. Despite the USD/CHF pair advancing at press time, it found strong resistance at the daily central pivot point at 0.9271, previously tested early in the European session.

In the outcome of extending last Friday’s decline, the first support would be the November 26 low at 0.9213. A breach of the latter would expose the 100-day moving average at 0.9195, followed by the S1 daily pivot at 0.9184.

On the flip side, if USD/CHF bulls break above the daily pivot, that would expose the 50-HSMA at 0.9282, followed by the 100-HSMA 0.9298.

• Pound fails to hold above 1.3300 versus US dollar.
• Market sentiment deteriorates during the American session.
• GBP/USD heads for lowest daily close since December 2020.

The GBP/USD turned to the downside after hitting a daily high at 1.3363 and dropped to 1.3295, reaching a fresh daily low. It then bounced back above 1.3300 but remains under pressure.

The US dollar gained momentum during the American session as the recovery in equity markets lost strength. Main stock indices in Wall Street remain in sportive territory but far from the highs. The Dow Jones gains just 0.10%.

Treasury yields are pulling back from daily highs as market sentiment deteriorates. The slide in US yields could limit the advance of the US dollar versus major European currencies. The 10-year yield fell from 1.56% to 1.52% during the last hour. Still, GBP/USD is headed toward the lowest daily close in almost a year.

Short-term outlook

A daily close below 1.3300 suggests more losses ahead for the pound in line with the dominant trend. The next support stands at 1.3270. The negative tone remains intact after cable was unable to hold above 1.3350.

If GBP/USD manages to rise back above 1.3350 and posts a daily close clearly above 1.3370, it would alleviate the bearish pressure. The next resistance stands at 1.3390 followed by 1.3415.

Technical levels

• The S&P 500 is enjoying a relief rally on Monday, recovered from under 4600 to around 4630.
• Omicron remains the main market theme and Biden is to deliver a speech on the new variant at 1645GMT.

US equity markets are enjoying a relief rally this Monday, with the S&P 500 index higher by around 0.9%. The index dropped 2.3% on Friday to close under 4600 amid fears that the newly discovered Omicron Covid-19 variant would trigger travel restrictions and global lockdowns, hurting the outlook for global growth. That was the first sub-4600 close so far in November. The index has since reclaimed the 4600 level and currently trades around 4630.

But analysts said the decline was exacerbated given thin liquidity conditions due to the Thanksgiving holidays in the US, and some said the move lower was overdone. Thus, some dip-buying appetite has returned to the market, with investors hoping to clinch a good Black Friday deal. Preliminary reports in South Africa from doctors treating Omicron infected patients indicate the variant might be milder than older variants, which could also be helping risk appetite. But the latest numbers from the Gauteng province in South Africa showed a sharp jump in the number of hospitalised patients.

Given that the new variant is touted as being significantly more transmissible than the delta variant, if it does start to look as though it causes a severe disease, then risk-off may return to markets. US President Joe Biden will deliver a speech on the Omicron variant at 1645GMT, the White House announced earlier in the session.

Despite a rise in US government bond yields, which were also paring back on last Friday’s losses, the duration-sensitive US tech sector led the recovery in US equity markets on Monday, with the Nasdaq 100 gaining 1.5%. A more than 10% surge in Twitter’s share price on the news that CEO Jack Dorsey is expected to step down helped the sector.

• The market sentiment has moderately improved, as it seems the omicron variant symptoms tend to be mild, per South African health authorities.
• The US Dollar Index gains some traction as investors weigh the impact of the new variant.
• USD/CAD in the near term has an upward bias, would find resistance around 1.2800.

On Monday, in the Asian session, the USD/CAD edged lower as COVID-19 worries about the omicron variant scale back a touch after South African health authorities reported that symptoms tend to be mild to moderate, but it appears to be more transmissible. During the New York session, the USD/CAD recovers some earlier day losses, climbing up to 1.2757 at the time of writing.

Global equity indices rise as concerns about the COVID-19 omicron variant ease

The market sentiment is upbeat, as European equity indices trim some of last week’s Friday losses amid thin liquidity conditions, which exacerbated fluctuation across all the financial assets. The US Dollar Index, which retracted all the way nearby 96.00, advances 0.28%, sitting at 96.36. Also, the US 10-year Treasury yield spike seven basis points, up to 1.557%, as market sentiment improves, though the investors are still cautious awaiting more information regarding the omicron variant.

In the meantime, the US crude oil benchmark, Western Texas Intermediate (WTI), which has a strong correlation with the Canadian dollar, is trading at $72.00, nearly 50% of Friday’s decline, caused by COVID-19 worries.

The USD/CAD price action in the overnight session witnessed a dip towards the 1.2715 area, but the pair remains subdued as investors weigh on the severity of the illness that the COVID-19 omicron variant could cause.

That said, market participants focus would lean towards risk appetite. However, macroeconomic data and central bank speakers could move the needle on the USD/CAD pair.

On Monday, the Canadian docket featured the Current Account for the Q3, which increased by 1.37B, lower than the 1.9B expected. On the US front, Pending Home Sales for October on a monthly basis is expected to rise by 1%, which would be revealed at 15:00 GMT. 

Turning to central bank speaking, the Bank of Canada Governor Macklem would cross the wires around 19:00 GMT, whereas Fed Chairman Jerome Powell would do it at 20:05 GMT.

USD/CAD Price Forecast: Technical outlook

In the 1-hour chart, the pair is consolidating around the 1.2715-60 range, above the hourly simple moving averages (HSMA’s), indicating the USD/CAD has an upward bias. A break above the 1.2760 range top would expose the November 26 high at 1.2798, 2 pips short of the 1.2800 figure. A breach of the latter would expose the R1 daily pivot point at 1.2842, followed by the R2 daily pivot at 1.2896.

On the other hand, the daily pivot point at 1.2743 is the first support, followed by the 50 and the 100-HSMA’s at 1.2726 and 1.2701, respectively.

Pending Home Sales in the US jumped by 7.5% on a monthly basis in October following September's 2.3% drop, data published by the US National Association of Realtors showed on Monday. That saw the Pending Home Sales index jump to 125.2 in October from 116.5 in September. 

On a YoY basis, sales were down 1.4% in October, given the Pending Home Sales index in October 2020 scored 127.0. 

Market Reaction

The US dollar has not reacted to the latest US housing numbers. The DXY continues to nudge higher as traders continue to unwind last Friday's steep drop. At present, the index is trading just under 96.40. 

• WTI continues to press higher and is now about $72.00, and has nearly unwound 50% of Friday’s drop.  
• Analysts saw last Friday’s Omicron variant fear triggered sell-off as overdone.

Oil prices continue to press higher, with front-month WTI futures now up more than $4.0 on the day and back in the $72.00s, meaning nearly 50% of Friday’s steep decline on Omicron variant concerns has now been unwound. To get above the 50% Fibonacci retracement of Friday’s slump, oil prices would need to remain the $73.00 level, which might be a bit of a stretch given how far prices have already come on the day. Beyond $73.00 to the upside, there is resistance around $75.00, while the 200-day moving average at $70.00 might offer decent support.

Oil prices surged at the Monday reopen of trade, with many market participants of the view that last Friday’s drop was overdone and exacerbated by thin liquidity conditions at the time due to the Thanksgiving holidays in the US. The latest global developments in response to Omicron (international travel bans) do justify a short-term drop in oil prices owing to expected lower jet fuel demand. But analysts reasoned that not enough is yet known about the new variant (like its vaccine resistance, transmissibility, associated severity of illness) to project a significant long-term hit to global oil demand.

That seemed to be the view of energy/oil officials from Saudi Arabia and Russia. The energy minister of the former was quoted on Monday saying he was not worried about the Omicron variant, while the Russian oil minister said he didn’t yet see the need for urgent action. The OPEC+ Joint Technical Committee will meet on Wednesday, followed by OPEC+ oil ministers (when output policy will be decided upon) on Thursday. Elsewhere this week, US inventory numbers will be watched as usual on Tuesday and Wednesday, while talks between JCPOA signatories (Iran, EU nations and the US) will restart discussions on returning to the 2015 nuclear deal. Strategists are not particularly hopeful that a deal that would allow Iranian oil exports to return to global markets will be struck.

• EUR/JPY bottomed out near 127.50 on Monday.
• The dollar regains ground and puts the cross under pressure.
• Fed’s Chair J.Powell speaks later in the NA session.

The recovery in the greenback keeps the euro under pressure and dragged EUR/JPY to fresh 9-month lows near 127.50 at the beginning of the week.

EUR/JPY struggles for direction, looks to risk trends

EUR/JPY attempts to leave behind three consecutive daily pullbacks amidst the rebound in the sentiment surrounding the greenback, higher US yields and rising cautiousness around the progress of the omicron variant.

Indeed, the US dollar regains the upside momentum and leaves behind part of Friday’s strong retracement, always helped by the pick-up in yields and the soft stance in the risk complex.

Earlier in the docket, the German flash inflation figures showed the CPI is seen contracting at a monthly 0.2% and rising 5.2% from a year earlier. In addition, the final Consumer Confidence in the euro area came in at -6.8 in November, matching the preliminary reading.

Across the Atlantic, Pending Home Sales and speeches by Powell, Clarida, Williams and Bowman should keep investors entertained later in the NA session.

EUR/JPY relevant levels

So far, the cross is gaining 0.02% at 128.27 and a surpass of 129.59 (weekly high Nov.23) would expose 130.01 (100-day SMA) and then 130.54 (200-day SMA). On the downside, the next support comes at 127.48 (monthly low Nov.29) followed by 126.00 (round level) and finally 125.08 (2021 low Jan.18).

EUR/USD is underperforming its major peers on Monday as selling emerges above 1.13. Economists at Scotiabank expect the world’s most popular currency pair to continue losing  bullish momentum.

Imposition of new limits to contain new covid variant are likely 

“The Eurozone, and the EUR, remain at risk of a tightening of restrictions in the coming weeks as contagions surge – even prior to the arrival of the new more contagious variant.”

“The longer-run EUR picture remains negative and the currency’s failure to hold above 1.13 is an initial suggestion that the EUR downtrend will resume in the days ahead.”

“Support is the overnight low of 1.1260 (the mid-figure zone more broadly) followed by 1.1230 and then the figure area. Resistance is 1.1300/10 and the Friday high of 1.1331.” 

“We maintain a bearish view on the EUR toward the 1.10/1.11 zone amid very dovish ECB settings and elevated odds of widespread lockdowns in the continent.”

Economist at UOB Group Ho Woei Chen, CFA, reviews the latest monetary policy meeting by the Bank of Korea (BoK).

Key Quotes

“As widely expected, the Bank of Korea (BOK) raised its benchmark base rate by 25 bps to 1.00% on Thursday (25 Nov). This is the second rate increase following an earlier move in August, driven by concerns over financial imbalances and higher inflation. However, the rate decision was not unanimous with one member (out of seven) voting to hold interest rate.”

“Having hiked rates twice, Governor Lee Ju-yeol cited uncertainty over the next move but will not rule out another hike in 1Q22. The timing continues to be dependent on domestic economic conditions while Fed’s normalisation trajectory would also be a factor. But by not committing to a timeline, the rate hike in November is seen as a dovish one.”

“The benchmark rate is still below the neutral level. Barring a downturn in its economy, we continue to project the next BOK rate hike in 1Q22 that would have unwound the total 75 bps rate cut due to the COVID-19 pandemic. Further out, elevated inflation from demand recovery, higher raw material costs and wage growth may pressure the BOK to bring the base rate above 1.25%, the level before the pandemic.”

USD/RUB so far shot up to 75.92 below which it is likely to short-term stall, according to Axel Rudolph, Senior FICC Technical Analyst at Commerzbank. A rise above it would target 78.04.

Upside pressure while above November low at 70.52

“USD/RUB has overshot the July peak at 75.36 and so far risen to its current November high at 75.92 below which it is expected to short-term stabilize. If it were to be exceeded, we would target the next higher April peak at 78.04.” 

“Minor support comes in along the breached resistance line and 200-day moving average at 73.64/57. Further support sits between the 55-day moving average and the September low at 72.26/22 as well as between the two-month support line and June low at 72.05/71.55.” 

“While the current November low at 70.52 underpins, overall upside pressure should be maintained. Only if it were to unexpectedly be slipped through, would the October trough at 69.22 be back in the frame.”

• USD/JPY staged a modest recovery from a near three-week low touched earlier this Monday.
• The risk-on impulse undermined the safe-haven JPY and remained supportive of the move.
• Rebounding US bond yields revived the USD demand and further provided a boost to the pair.

The USD/JPY pair reversed an intraday dip to a near three-week low and was last seen hovering near the top end of its daily trading range, around the 113.75-80 region.

Following a modest bullish gap opening, the USD/JPY pair witnessed some selling and dropped to sub-113.00 levels during the early part of the trading activity on the first day of a new week. However, a combination of factors assisted the pair to attract some buying at lower levels and recover a part of Friday's heavy losses.

Investors considered that Friday's reaction in the financial markets to the discovery of the omicron coronavirus variant was overdone. This, in turn, led to a positive turnaround in the global risk sentiment, which undermined the safe-haven Japanese yen and was seen as a key factor that acted as a tailwind for the USD/JPY pair.

Bulls further took cues from rebounding US Treasury bond yields, which helped revive the US dollar demand and further extended some support to the USD/JPY pair. That said, worries about the potential economic fallout from the new vaccine-resistant coronavirus variant might hold back traders from placing aggressive bullish bets.

Moreover, the latest development surrounding the coronavirus saga might have forced investors to scale back their expectations for an early policy tightening by the Fed. This might keep a lid on any runaway rally for the greenback and collaborate to cap the USD/JPY pair, further warranting some caution for bullish.

Next on tap will be the release of the US Pending Home Sales data, which might do little to provide any meaningful impetus. That said, traders might take cues from the broader market risk sentiment. This, along with the US bond yields, might influence the USD price dynamics and provide some impetus to the USD/JPY pair.

Technical levels to watch

The S&P 500 has now completed a bearish “reversal week”. Anlaysts at Credit Suisse continue to look for a deeper setback to 4568/66 objective and potentially the 63-day average at 4524/20, which is set to hold.

Initial resistance moves to 4623 

“Whilst we treat this ‘reversal week’ with a little caution given the US Thanksgiving holiday last week, we still maintain our call from the beginning of last week for a deeper correction lower. We thus stay bearish for our 4568/66 objective – the 38.2% retracement of the October/November rally.” 

“Whilst we continue to look for the 4568/66 area to hold at first, we would still not rule out a test of the key 63-day average at 4524/20, which we look to prove a solid floor again. A weekly close below 4520 though would warn of a more serious correction lower with support seen next at 4448/38.” 

“Resistance moves to 4623 initially, with the immediate risk seen lower whilst below 4665. Back above 4701/03 though is needed to suggest the worst of the setback is over and core uptrend resumed.”

• NZD/USD continues to trade heavily on Monday and is probing annual lows and support just above 0.6800.
• The pair remains vulnerable to an unwind of hawkish RBNZ bets.

Earlier attempts at recovery following last week’s intense selling pressure have faded, with NZD/USD dropping back towards 0.6800 having topped out just under 0.6840 earlier in Friday’s European morning. The pair, which is now down about 0.2% on the day, is probing last week’s annual lows around 0.6805 as the pair threatens a more convincing break below the 0.6800 level. A break below this level could usher in an acceleration of (technical) selling that could propel the pair lower towards the next area of significant support under 0.6600.

To recap recent price action; NZD/USD dropped more than 2.5% last week, its worst week since August when a snap lockdown caused the RBNZ to delay its first post-Covid-19 rate hike. The downside was initially triggered by a broad strengthening of the US dollar as momentum built behind the idea that, amid high inflation and a continued strong recovery, the Fed would quicken its QE taper and bring forward rate hikes. NZD was then a victim of its status as a risk/commodity-sensitive currency, as well as its exposure to hawkish central bank bets (given the RBNZ’s stance as one of the most hawkish G10 central banks) when markets tumbled on Friday. News about the Omicron Covid-19 variants high degree of mutations (vaccine resistant?) and high transmissibility triggered risk-off and a paring back on hawkish central bank bets, a negative combination of the kiwi.

This Monday, despite the broader market mood having improved a tad on hopeful early signs out of South Africa that the illness caused by Omicron infection is milder than with other strains of the virus, NZD continues to struggle. That could be due to dovish commentary from RBNZ Chief Economist Yuong Ha, who said that the bank might pause its rate hike plans should Omicron be a “game-changer”. As fears linger about the severity of the new variant, this is likely to weigh disproportionately on the kiwi, given its disproportionate exposure to an unwind in hawkish central bank bets (the build-up of which previously support the kiwi).

• EUR/GBP witnessed fresh selling on Monday and reversed a part of Friday’s strong gains.
• A combination of factors undermined the euro and exerted some pressure on the cross.
• Brexit-related uncertainties acted as a headwind for the GBP and helped limit the losses.

The EUR/GBP cross remained depressed, around the 0.8460-65 region through the mid-European session and had a rather muted reaction to the German consumer inflation figures.

Having struggled to reclaim the key 0.8500 psychological mark, the EUR/GBP cross opened with a bearish gap on the first day of a new week and eroded a part of Friday's strong gains to a near two-week high. The intraday move up quickly ran out of steam near the 0.8485 region amid the emergence of fresh selling around the shared currency.

Views that Friday's market reaction to the discovery of the omicron coronavirus variant was overdone led to a positive turnaround in the risk sentiment and drove flows away from funding currencies, including the euro. Apart from this, rebounding US Treasury bond yields revived the US dollar demand and further undermined the common currency.

On the other hand, expectations for an imminent interest rate hike by the Bank of England in December further contributed to the British pound's relative outperformance against its European counterpart. That said, persistent Brexit-related uncertainties acted as a headwind for the sterling and helped limit the downside for the EUR/GBP cross.

On the economic data front, hotter-than-expected German CPI print did little to influence the euro or provide any impetus to the EUR/GBP cross. In fact, the Harmonized Index of Consumer Prices (HICP) accelerated to a 6.0% YoY rate in November, surpassing consensus estimates pointing to a rise to 5.4% from the 4.6% reported in October.

Meanwhile, the lack of a strong follow-through selling warrants some caution before confirming that the recent recovery from the 0.8380 support zone, or the lowest level since February 2020 has run out of steam. That said, the EUR/GBP pair's inability to capitalize on Friday's strong move up should hold back bullish traders from placing aggressive bets.

Technical levels to watch

AUD/USD is so far holding major support at the 0.7106 low. Nevertheless, economists at Credit Suisse stay biased towards a closing breakdown to confirm a major long-term top. 

AUD/USD is very close to confirming a major top below 0.7106

“Weekly MACD has seen a confirmed negative cross, which further exacerbates the downside risks and we are now very confident that the market is in the process of forming a much larger long-term top, which would be confirmed by a weekly close below the 2021 low at 0.7106.” 

“A weekly close below 0.7106 would turn the long-term risks lower and suggest that aggressive further weakness is likely, with the next supports seen at 0.7053/48, which is the 38.2% retracement of the 2020/21 rise, then 0.6991.”

“The size of the top suggests a move to 0.6758 is easily achievable over the medium-term.” 

“Near-term resistance moves lower to 0.7145/50, then 0.7200/10, with more important resistance staying at 0.7268/74, which should hold into the close to maintain a high degree of confidence in the breakdown.”

• Spot gold is stable on Monday close to its 50DMA near $1790.
• Gold traders await further information on Omicron, as well as Fed speak and US data this week.

Spot gold (XAU/USD) prices continue to stabilise close to the 50-day moving average, which currently resides just above $1790 and are broadly flat on the day, despite a modest pick up in the US dollar and US real yields. The pair has seen choppy trade since last Friday, in tandem with a pick-up in cross-asset volatility given worries about the newly discovered Covid-19 variant (Omicron) in South Africa. It swung as high as the $1815.00s last Friday as the US dollar and US yields dived as Omicron fears saw markets pull back on hawkish Fed bets, but then lost momentum and quickly pulled back under $1800 again. Shortly after the reopening of trade on Monday, it slid as low as $1770, but has since recovered.

Recent trade is indicative that market participants are in two minds about whether gold is an appropriate hedge against Omicron risk. Firstly, if the variant does prove a big problem to the global economic recovery, that likely means central banks remain more dovish than they otherwise would, which would be good for gold. Moreover, is global travel and lockdown restrictions to impact supply chains, inflationary pressures could remain at elevated levels for longer, increasing the precious metal’s appeal as an inflation hedge. But there is a lot of uncertainty about how bad this new variant actually is going to be, with initial reports from South African doctors suggesting the variant is associated with milder symptoms than other Covid-19 variants.

Markets need more clarity on Omicron; its ability to evade vaccine-induced immunity, its severity, its transmissibility etc. The picture should be clearer in a few weeks. Otherwise, gold traders will be on notice for a barrage of Fed speak and US data this week to gauge how the Fed feels about recent pandemic developments and whether underlying US economic momentum remains strong. Atlanta Fed President Raphael Bostic over the weekend did say that Omicron was a risk, but also that he could support a faster QE taper and more than one rate hike in 2022. Perhaps other Fed members will this week also play down Omicron risks. That might suggest the recent pullback in hawkish Fed bets may have been an over-reaction. That could mean higher short-end and real yields, which would be bad for gold.

The annual Harmonized Index of Consumer Prices (HICP), the European Central Bank's preferred gauge of inflation, rose to 6.0% from 4.6% in October, compared to analysts' estimate of 5.4%. MoM, the HICP was up 0.3%, above consensus expectations for a 0.5% drop. 

Looking at the alternate Consumer Price Index numbers; the YoY number came in at 5.2%, above expectations for 5.0%, while the MoM change was -0.2%, above expectations for a larger 0.5% drop. 

Market Reaction

The euro has not seen a reaction to the latest German inflation numbers, given that the state figures had been trickling out throughout the morning and did point to an upside surprise. But the hotter than expected German inflation numbers put pressure on the ECB not to be overly dovish and seem to support the consensus view that the PEPP should definitely end in March 2022. 

• AUD/USD staged a goodish rebound from the 0.7100 neighbourhood, or over a three-month low.
• The risk-on impulse turned out to be a key factor that benefitted the perceived riskier aussie.
• A strong pickup in the US bond yields revived the USD demand and capped gains for the major.

The AUD/USD pair held on to its modest intraday gains heading into the North American session, albeit seemed struggling to capitalize on the move beyond mid-0.7100s.

The pair attracted some buying in the vicinity of the 0.7100 mark on Monday and recovered a major part of the previous session's losses to over a three-month low. Investors considered that Friday's market reaction to the discovery of the omicron coronavirus variant was overdone. This, in turn, led to a positive turnaround in the global risk sentiment, which was seen as a key factor that benefitted the perceived riskier aussie.

Meanwhile, the risk-on impulse in the markets led to a sharp recovery in the US Treasury bond yields, which helped revive the US dollar demand and kept a lid on any further gains for the AUD/USD pair. That said, fresh COVID-19 jitters might have forced investors to reassess the Fed's (hawkish) policy outlook. This could hold back traders from placing aggressive bullish bets around the USD and continue lending some support to the major.

Nevertheless, the AUD/USD pair, so far, has managed to defend the 0.7100 mark, or the YTD low touched in August, which should act as a key pivotal point for short-term traders. Monday's US economic docket features the release of Pending Home Sales data, though is unlikely to provide any meaningful impetus. The market focus will remain glued to developments surrounding the coronavirus saga, which will play a key role in influencing the risk sentiment.

Apart from this, the US bond yields will influence the USD price dynamics and produce some trading opportunities around the AUD/USD pair. Traders will further take cues from Fed Chair Jerome Powell's speech later this Monday, which will be followed by the official Chinese PMI prints for November during the early Asian session on Tuesday.

Technical levels to watch

European Central Bank (ECB) Governing Council member Pablo Hernandez de Cos said on Monday the rise in inflation rates can be expected to be transitory despite having proved to be stronger and more persistent than anticipated a few months ago. 

Additional takeaways

"In nature and, in the absence of further shocks, inflation should start to subside over the course of the coming year."

"Some uncertainties surround this gradual price normalisation scenario."

"For time being, the second-round effects observed across Europe are subdued."

"Risks to the growth outlook remain tilted to the downside."

"We aim to avoid premature tightening of monetary policy in response to inflation running above the target, when such deviation is deemed to be temporary."

"It can be concluded that we are unlikely to witness interest rate hikes next year or even for some time thereafter."

"In the current context, it is better, in my view, to err on the side of caution when it comes to adjusting our monetary policy."

"I believe retaining PEPP's flexibility going forward would be warranted."

Market reaction

These comments don't seem to be having a significant impact on the shared currency's performance against its rivals. As of writing, the EUR/USD pair was down 0.25% on a daily basis at 1.1288.

• USD/TRY starts the week on a positive footing.
• Turkey’s Economic Confidence dropped to 99.30.
• President Erdogan defended once again the low-rate policy.

The selling pressure around the Turkish lira remains well and sound and lifts USD/TRY to fresh 3-day peaks near the 12.80 mark on Monday.

USD/TRY up on politics, weak data

USD/TRY advances for the third session in a row at the beginning of the week and trades at shouting distance from last week’s all-time highs past 13.0000 the figure ((November 24).

The lira depreciates further on Monday in response to earlier comments by President Erdogan, who once again reiterated its firm opposition to interest rate hikes and sustained his (particular) view that interest rates generate inflation. Erdogan suggested that inflation could grind lower before the election in 2023 and added that the recent high volatility in the exchange rate is decoupled from economic fundamentals.

Further selling pressure in the lira came after Turkey’s Economic Confidence Index eased to 99.30 in November (from 101.40). Additional data saw the trade deficit shrinking to $1.44B in October.

USD/TRY key levels

So far, the pair is gaining 4.19% at 12.7578 and a drop below 11.5451 (low November 24) would expose 10.7007 (20-day SMA) and then 9.6361 (55-day SMA). On the other hand, the next up barrier lines up at 13.1105 (all-time high Nov.24) followed by 14.0000 (round level).

• GBP/USD gained some positive traction on Monday and moved away from YTD low.
• The risk-on impulse undermined the safe-haven USD and extended some support.
• Brexit-related uncertainties acted as a headwind and capped gains for the sterling.

The GBP/USD pair climbed to a three-day high, around the 1.3360-65 region during the mid-European session, albeit lacked follow-through.

The risk-on impulse in the markets failed to assist the safe-haven US dollar to capitalize on its modest intraday gains, rather prompted some selling at higher levels. This, in turn, was seen as a key factor that provided a modest lift to the GBP/USD pair and pushed spot prices further away from the lowest level since December 2020 touched on Friday.

The global risk sentiment witnessed a positive turnaround on the first day of a new week as investors preferred to wait for signs that the Omicron variant of coronavirus would hamper economic recovery. Moreover, views that Friday's slump in the financial markets was overdone led to a strong recovery in the equity markets and undermined traditional safe-haven assets.

Apart from this, expectations for an imminent interest rate hike by the Bank of England in December further underpinned the GBP/USD pair. That said, the UK-EU impasse over the Northern Ireland Protocol, along with the worsening row over the post-Brexit fishing rights between France and Britain held back bullish traders from placing aggressive bets around the sterling.

There isn't any major market-moving data due for release from the UK, while the US economic docket features the only release of Pending Home Sales and might do little to provide any impetus. This makes it prudent to wait for a strong follow-through buying before confirming that the GBP/USD pair has bottomed out and positioning for any meaningful recovery.

Technical levels to watch

• EUR/USD corrects lower after advancing past 1.1300 on Friday.
• If the selling impulse accelerates, then the pair could retest 1.1186.

EUR/USD gives away part of the gains recorded on Friday’s strong rebound to the area further north of 1.1300 the figure.

If Friday’s top is not cleared in the very short term, then sellers could return to the market and force the pair to resume the downside. Against this, another visit to the 2021 low at 1.1186 (November 23) should not be ruled out yet.

The probability of further losses remains unchanged as long as EUR/USD trades below the 2-month resistance line (off September’s peak) near 1.1570. In the longer run, the offered stance in spot is expected to persist while below the 200-day SMA at 1.1831.

EUR/USD daily chart

UOB Group’s Senior Economist Julia Goh and Economist Loke Siew Ting assess the latest inflation figures in the Malaysian economy.

Key Takeaways

“Headline inflation rose to a 4-month high of 2.9% y/y in Oct (2.2% in Sep). This came in above ours (2.3%) and Bloomberg consensus (2.8%). Compared to the previous month, the consumer price index (CPI) rose 0.7%.”

“Inflation averaged 2.3% y/y in Jan-Oct, implying that our full-year inflation target of 2.5% remains achievable (official forecast: 2.4%; 2020: -1.2%) as we price-in higher inflation above 3% in Nov-Dec. Looking towards 2022, upside risks to inflation have emerged following a global energy crunch, supply chain bottlenecks, and labour shortage post-pandemic, which could lead to more persistent inflation and second-round effects.”

• DXY reverses part of Friday’s sharp pullback.
• The immediate target comes at the 2021 high near 97.00.

DXY manages to regain some composure after Friday’s selloff and advances to the vicinity of 96.40 on Monday.

Above current YTD peaks should come the round mark at 97.00. The surpass of the latter could prompt the index to attempt a move to the 97.80 level (high June 30).

In the meantime, while above the 2-month support line (off September’s low) just beyond 94.00, extra gains in DXY remain well on the table. In addition, the broader constructive stance remains underpinned by the 200-day SMA at 92.44.

DXY daily chart

UOB Group’s FX Strategists noted USD/CNH keeps looking to a test of the 6.4070 level in the near term.

Key Quotes

24-hour view: “We expected USD to ‘trade sideways between 6.3830 and 6.3970’ last Friday. USD subsequently traded between 6.3889 and 6.3999 before closing at 6.3885. USD dropped sharply during early Asian hours and could weaken to 6.3830. Resistance is at 6.3950 followed by 6.4000.”

Next 1-3 weeks: “We continue to hold the same view from last Thursday (25 Nov, spot at 6.3940). As highlighted, mild upward pressure could lead to USD edging higher to 6.4070. On the downside, a breach of 6.3750 (no change in ‘strong support’ level) would indicate that the current mild upward pressure has dissipated.”

• EUR/JPY adds to the recent pullback and retests 128.00.
• Further south comes the August/September lows at 127.93.

EUR/JPY extends the leg lower and breaks below 128.00 to clinch fresh 9-month lows in the id-127.00s on Monday.

The continuation of the downtrend remains well on the cards for the time being. A sustainable breach of 127.48 (November 29) exposes a deeper pullback to the 2021 lows in the 125.00 neighbourhood (January 18).

Looking at the broader picture, the outlook for the cross is expected to remain negative while below the 200-day SMA, today at 130.54.

EUR/JPY daily chart

• Silver edged higher on Monday and recovered a part of the previous session’s heavy losses.
• The bias seems tilted in favour of bearish traders and supports prospects for further losses.
• A sustained move beyond the $24.00 mark is needed to negate the near-term bearish outlook.

Silver regained positive traction on the first day of a new week and recovered a major part of Friday's slide to sub-$23.00 levels, or the lowest level since October 14. The white metal maintained its bid tone through the first half of the European session and was last seen trading just below mid-$23.00s, up nearly 1% for the day.

Looking at the broader picture, the recent sharp retracement slide from the vicinity of mid-$25.00s stalled near support marked by the 61.8% Fibonacci level of the $21.42-$25.41 strong move up. This should now act as a key pivotal point for short-term traders, which if broken decisively should pave the way for further near-term losses.

Given last week's sustained break below the 100-day SMA and an ascending channel confluence support, the bias seems tilted firmly in favour of bearish traders. The negative outlook for the XAG/USD is reinforced by bearish technical indicators on the daily chart, which are still far from being in the oversold territory.

Hence, any subsequent positive move towards the $23.70-75 region might still be seen as a selling opportunity and remain capped near the $24.00 confluence breakpoint. The latter coincides with the 38.2% Fibo. level, which if cleared could shift the bias in favour of bulls and push the XAG/USD to the $24.45-50 region (23.6% Fibo. level).

On the flip side, the $23.10-$23.00 area might now protect the immediate downside. A convincing break below will reaffirm the bearish bias and turn the XAG/USD vulnerable. The next relevant support is pegged near the $22.70-65 region, below which the commodity could eventually drop to test the $22.30-25 support en-route the $22.00 mark.

Silver daily chart

Technical levels to watch

• Rebounding oil prices underpinned the loonie and acted as a headwind for USD/CAD.
• A goodish pickup in the US bond yields revived the USD demand and helped limit losses.
• The mixed fundamental backdrop warrants some caution before placing aggressive bets.

The USD/CAD pair traded with a negative bias through the first half of the European session, albeit lacked any follow-through selling and remained confined in a range below mid-1.2700s.

The pair opened with a bearish gap on the first day of a new week and eroded a part of Friday's strong gains to the 1.2800 mark, or the highest level since September 22. Crude oil prices rebounded sharply on Monday and underpinned the commodity-linked loonie. This, in turn, was seen as a key factor that acted as a headwind for the USD/CAD pair.

Meanwhile, views that Friday's slump in the global financial markets – triggered by concerns about the Omicron coronavirus variant – was overdone led to a strong recovery in the risk sentiment. The risk-on impulse led to a solid rebound in the US Treasury bond yields, which revived the US dollar demand and helped limit the downside for the USD/CAD pair.

That said, the latest COVID-19 jitters might have forced investors to reassess the prospects for an early policy tightening by the Fed. This seemed to have held back the USD bulls from placing fresh bets and failed to assist the USD/CAD pair to gain any meaningful traction. The mixed fundamental backdrop warrants caution for aggressive traders.

Monday's US economic docket features the only release of Pending Home Sales data later during the early North American session, though might do little to provide any impetus. Hence, the focus will remain on developments surrounding the coronavirus saga, which will play a key role in driving the broader market risk sentiment and demand for the safe-haven USD.

Apart from this, the US bond yields will also influence the USD. Traders will further take cues from oil price dynamics to grab some short-term opportunities around the USD/CAD pair.

Technical levels to watch

A break below the 112.70 region in USD/JPY appears out of favour for the time being, commented FX Strategists at UOB Group.

Key Quotes

24-hour view: “We highlighted last Friday that ‘the downside risk has increased but 114.60 is expected to offer solid support’. The ease by which USD sliced through 114.60 and nose-dived to 113.03 came as a surprise. The sharp bounce from the low amid oversold conditions indicate that USD is unlikely to weaken further. For today, USD is more likely to consolidate and trade between 113.20 and 114.10.”

Next 1-3 weeks: “While we noted last Friday (26 Nov, spot at 114.95) that ‘the sudden and sharp loss in momentum indicates that the odds for further USD strength have diminished considerably’, we did not expect the sharp sell-off that sent USD plunging by a whopping -1.77% (NY close of 113.31), its largest 1-day loss since March last year. The sharp and rapid drop appears to be overdone and while USD could weaken further, the odds for a sustained drop below 112.70 are not high for now. On the upside, the ‘strong resistance’ level (currently at 114.65) is likely to cap any recovery, at least within these few days.”

• WTI sees a dead cat bounce on Monday after Friday’s collapse.
• Traders hope that OPEC+ may pause oil output hike amid Omicron covid woes.
• Bearish crossover on the 1D chart suggests that the downside remains in play.

WTI (NYMEX futures) is attempting a solid comeback from Friday’s massive collapse to two-month lows of $67.31.

At the time of writing, the US oil is up about 5% on the day, consolidating the recovery at around $71. The rebound ran into stiff offers at the $72 mark, triggering a pullback in the price over the last hour.

WTI is trying to find its feet this Monday, as markets remain hopeful that OPEC and its allies (OPEC+) will pause its planned oil output increases, in the wake of the new Omicron covid variant-led uncertainty.

On Friday, the black gold tumbled nearly $10, in a massive sell-off that got triggered by the new covid strain cases in South Africa. Rising cases of the variant globally combined with its impending risks to the global economic recovery and chances of lockdowns worldwide dented the sentiment around the high-beta assets, including oil.

The Thanksgiving holiday break-induced thin market conditions exacerbated the pain in the US oil. Looking ahead, the covid updates and OPEC+ headlines will continue to have a significant bearing on WTI price.

From a short-term technical perspective, WTI has recaptured the 200-Daily Moving Average (DMA) resistance at $69.75 on its road to recovery.

It remains to be seen if the price can yield a daily closing above the latter amid a bear cross in play. The 21-DMA has breached the 50-DMA from above, flashing a bearish signal.

The 14-day Relative Strength Index (RSI) continues to trade below the midline, despite the latest uptick, adding credence to the bearish view.

On the upside, the horizontal 100-DMA at $73.95 is the level to beat for gold bulls. Meanwhile, the $70 mark could contain the selling resurgence, below which Friday’s low will be retested.

WTI: Daily chart

GBP/USD seems to have set near-term bottom around 1.3300. In the view of FXStret’s Eren Sengezer, cable could eye 1.3400 as next recovery target.

UK doesn't think tighter rules will be needed to combat the new coronavirus variant

“On Monday, the junior UK health minister Edward Argar said that they don't expect rules to be tightened further in the next three weeks.”

“GBP/USD is facing static resistance at 1.3360. In case a four-hour candle closes above that level, buyers could target 1.3400 (psychological level, 50-period SMA on the four-hour chart) and 1.3430 (100-period SMA).”

“Supports are located at 1.3320 (static level, 20-period SMA), 1.3300 (psychological level) and 1.3280 (2021-low).”

See – GBP/USD: Further downside for cable next year as the UK economy appears to be challenging – HSBC

• Gold regained positive traction on Monday and inched closer to the $1,800 mark.
• Concerns about the new COVID-19 variant benefitted the metal safe-haven status.
• Rebounding US bond yields revived the USD demand and capped any further gains.

Gold attracted fresh buying near the $1,780 support zone on the first day of a new week and maintained its bid tone through the early part of the European session. The XAU/USD was last seen hovering near the top end of its daily range, with bulls making a fresh attempt to conquer and build on the momentum beyond the $1,800 mark. Worries about the impact of the possibly vaccine-resistant Omicron coronavirus variant turned out to be a key factor that acted as a tailwind for the safe-haven precious metal.

Meanwhile, expectations that the emergence of a new variant could force the Fed to change its hawkish stance further benefitted the non-yielding yellow metal. Investors, however, preferred to wait and see if the new coronavirus variant would eventually derail the economic recovery. This was evident from the risk-on impulse, which, in turn, could hold back bulls from placing aggressive bets around gold. Apart from this, a stronger US dollar might further cap gains for the dollar-denominated commodity.

Receding safe-haven demand triggered a solid rebound in the US Treasury bond yields and helped revive the USD demand. This comes on the back of Friday's sharp pullback from the $1,815-16 region and makes it prudent to wait for a strong follow-through buying before positioning for any further intraday appreciating move. Hence, it remains to be seen if gold is able to capitalize on the move or meet with fresh supply at higher levels amid absent relevant market moving economic releases from the US.

Market participants now look forward to the US economic docket, featuring the only release of Pending Home Sales later during the early North American session. The data might do little to provide any impetus as the focus remains on developments surrounding the coronavirus saga. Traders will take cues from the broader market risk sentiment. Apart from this, the US bond yields will influence the USD price dynamics and further contribute to producing some short-term trading opportunities around gold.

Gold daily chart

Technical outlook

From a technical perspective, any subsequent move up is likely to confront immediate resistance near Friday’s swing high, around the $1,815-16 area. This is followed by the $1,822-23 hurdle, which if cleared decisively has the potential to lift gold prices back towards the $1,834 heavy supply zone. On the flip side, the $1,788-87 region now seems to protect the immediate downside ahead of the $1,780 horizontal support. A convincing break below will be seen as a fresh trigger for bearish traders and set the stage for an extension of the recent sharp pullback from the $1,877 area, or a multi-month top set on November 16.

Levels to watch

USD/CAD has touched 1.2800 for the first time since late September. The pair is currently edging lower toward mid 1.2700s and economists at Barclays expect this trend to continue as the Bank of Canada (BoC) is set to outpace the Federal Reserve hiking rates.

BoC’s relative hawkishness bodes well for the CAD

"We expect the BoC to retain its hawkish stance and hike more in line with what the market is pricing, unlike the Fed. We expect the BoC to hike three times next year starting in Q2 22 whereas we expect the Fed to be relatively more patient and expect no hikes in 2022.”

“BoC’s relative hawkishness bodes well for the CAD, and we do not expect any challenge to market pricing from its upcoming framework review." 

"We expect USD/CAD to continue to grind slowly lower reaching 1.22 by Q2 22.” 

“On the downside, the loonie remains vulnerable to broader risk sentiment deterioration"

FX option expiries for November 29 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts        

• 1.1250 585m
• 1.1275 706m
• 1.1300 1.7b

- GBP/USD: GBP amounts        

• 1.3750 662m

- USD/JPY: USD amounts                     

• 115.25 995m

- USD/CHF: USD amounts        

• 0.8990 401m
• 0.9075 500m
• 0.9275 1.1b
• 0.9400 536m

- USD/CAD: USD amounts       

• 1.2600 1.2b

- AUD/USD: AUD amounts

• 0.7100 799m

- EUR/GBP: EUR amounts

• 0.8625 431m

The EUR/HUF pair is currently trading below the 370.00 level. However, it should grind higher  towards 375.00 and 378.00, in the opinion of economists at Société Générale.

Further upside expected

“EUR/HUF has broken out from the year-long consolidation which points towards further upside. It should gradually head higher towards projections of 375.00 and 378.00.”

“November low of 358.50 is near-term support.”

GBP/USD is likely to move sideways over the near term even if the Bank of England (BoE) delivers a rate hike on Thursday, December 16. Looking into 2022, economists at HSBC see further downside for the pound, as economic headwinds could weigh on the UK’s rates outlook.

Near-term neutral, but more downside risks ahead

“We expect GBP/USD to move sideways over the near term, despite the market’s confidence for a 15bp hike when the BoE meets on 16 December.”

“Looking into 2022, we believe interest rates are likely to have a bigger impact on G10 FX. With at least three more hikes in the price next year, the interest rate level of the GBP is still below that of other high-yielding G10 currencies, such as the NZD, and the USD.”

“The 2022 outlook for the UK economy appears to be challenging, amid an uneven economic recovery, Brexit frictions, and ongoing negotiations regarding the Northern Ireland protocol. These may somewhat explain the persistently low expectations of the UK’s ‘terminal’ interest rate, which makes the GBP vulnerable to a shift towards potentially faster tightening cycle in other G10 currencies, especially the USD.” 

“The GBP will probably also face a deteriorating current account deficit when the UK economy normalises.”

Speaking at a scheduled appearance on Monday, the Bank of Japan (BOJ) Haruhiko Kuroda said, “I’m quite sure Japanese economy would overcome the impact of COVID-19.”

The economy would be on recovery and growing phase within a couple of months, Kuroda noted.

more to come ...

The GBP/USD pair stays in a consolidation phase above 1.3300 to start the week. While the 1.3250 level holds, the cable may be set to stage a rebound, according to economists at Société Générale.

50-DMA at 1.3570/1.3600 to be a near-term hurdle

“GBP/USD has approached the support of 1.3250 representing weekly Ichimoku cloud. Holding above this, a rebound can not be ruled out.” “50-DMA at 1.3570/1.3600 will be a near-term hurdle.”

Extra losses in AUD/USD could re-visit the 0.7105 level in the short-term horizon, suggested FX Strategists at UOB Group.

Key Quotes

24-hour view: “We expected AUD to weaken last Friday but we were of the view that ‘any weakness is expected to encounter strong support at 0.7140’. The subsequent weakness exceeded our expectations as AUD plummeted to 0.7113 before rebounding. The combination of oversold conditions and waning momentum indicates that AUD has likely moved into a consolidation phase. In other words, AUD is likely to trade sideways for today, expected to be between 0.7115 and 0.7160.”

Next 1-3 weeks: “We have expected AUD to weaken since early last week. In our latest narrative from last Friday (26 Nov, spot at 0.7170), we indicated that there is room for AUD to weaken further but it is too early to tell if AUD could move to the year-to-date low near 0.7105. AUD subsequently dropped to 0.7113. Downward momentum has improved and a break of 0.7105 would not be surprising. That said, deeply oversold conditions suggest that AUD may not be able to maintain a foothold below this level. Overall, the current AUD weakness is deemed intact as long as it does not move above 0.7205 (‘strong resistance’ level was at 0.7235 last Friday).”

Consumer demand is being held back by supply bottlenecks leading to higher prices and central bank unease. Economists at HSBC have recently lowered their 2021 GDP forecast for the eurozone to 5% but raised it for the UK to 7.1%.

How bottlenecks evolve are key for growth and inflation

“How these bottlenecks evolve in the coming months will therefore be key for the growth and inflation outlook into 2022. It seems likely that these pressures will persist until at least the middle of next year, even if they may not get much worse. But after that, how quickly shipping prices fall, backlogs alleviate, and people return to the labour force will have a significant impact on growth speeds, inflation rates, and how central banks respond.”

“We recently lowered our eurozone GDP forecasts for 2021 to 5.0% (from 5.2%) given the more drawn-out disruption to supply chains and manufacturing. There was no change to our forecast for 2022, which remains 4.0% while we see 2023 growth 0.1% higher, at 2.0%, due to stronger German manufacturing growth in H2 2022, once disruption has eased.”

“In the UK, we expect a slower rate of GDP growth in Q3 2021 than previously forecast given supply issues, but the government’s big upward revisions to growth in Q1 and Q2 means that we recently changed our annual growth forecasts for 2021 and 2022 to 7.1% and 5.1%, respectively.”

The European Central Bank (ECB) Vice President Luis de Guindos said on Monday, “the most worrying factor for economic growth in eurozone right now is inflation.”

Further quotes

“Factors behind inflation are of transitory nature, therefore expects inflation to start falling next year.”

“New coronavirus variants and spread of COVID-19 cases will increase uncertainty.”

“Potential withdrawal of support measures for companies in the eurozone has to be taken very carefully.”

“It is important for monetary policy to keep all options open.”

In the last hour, the central bank Governing Council member and Bank of France Head Francois Villeroy de Galhau noted: “Economic effects of successive covid waves have been less and less damaging.”

“Omicron shouldn’t presumably change the economic outlook that much,” he added.

Market reaction

Despite the not-so-encouraging comments from the ECB policymaker, EUR/USD is attempting a bounce from 1.1260 daily lows. The spot was last seen trading at 1.1273, down 0.39% on the day.

Commenting on the inflation outlook, the European Central Bank (ECB) executive board member Isabel Schnabel said on Monday, “we think that inflation peak has been reached in November.”

Additional comments

EUR Reaction

The notable US dollar comeback is weighing heavily on the EUR/USD pair, as it now trades at 1.1260, down 0.50% on the day.

• NZD/USD managed to defend the 0.6800 mark and stage a modest recovery on Monday.
• The risk-on impulse turned out to be a key factor that benefitted the perceived riskier kiwi.
• Rebounding US bond yields helped revive the USD demand and capped gains for the major.

The NZD/USD pair extended its sideways consolidative price move and remained confined in a range, around the 0.6825 region through the early European session.

Having defended the 0.6800 round-figure mark, the NZD/USD pair staged a modest recovery from the lowest level since November 2020, though lacked any strong follow-through. As investors assess the economic impact of the new vaccine-resistant Omicron coronavirus variant, the risk-on impulse in the markets extended some support to perceived riskier currencies, including the kiwi.

That said, a goodish pickup in the US dollar demand kept a lid on any meaningful upside for the NZD/USD pair, at least for now. Receding demand for safe-haven assets led to a strong rebound in the US Treasury bond yields and underpinned the greenback. That said, the repricing of the likely timing of the Fed's rate hike move might hold back the USD bulls from placing aggressive bets.

The latest development surrounding the coronavirus saga might have forced investors to scale back their bets for an early policy tightening by the Fed. This could act as a headwind for the greenback and lend some support to the NZD/USD pair. That said, the pair's inability to register any meaningful recovery suggests that the recent bearish trajectory might still be far from over.

The US economic docket features the only release of Pending Home Sales data, which might do little to provide any impetus. This makes it prudent to wait for a strong follow-through buying before confirming a near-term bottom for the NZD/USD pair. On the other hand, bearish traders might wait for a sustained break below the 0.6800 round-figure mark before positioning for further losses.

Technical levels to watch

AUD/USD fell sharply on Friday. Although the pair stages a rebound on Monday, the aussie remains sensitive to changes in sentiment, economists at OCBC Bank report.

Any further bounce to be capped at 0.7200

“The AUD/USD bias may still be towards the 0.7100 support, especially if the Omicron concerns /risk-off sentiment persists for the next few days.”

“Any further bounce should be capped at 0.7200 for now.”

EUR/GBP is about 1% off its lows. Economists at ING expect the pair to move between 0.84-0.85 as the pound seems vulnerable to Omicron, the covid new variant. 

GBP may struggle to quickly recoup recent losses

“GBP seems to be vulnerable to covid variant news because: i) UK proficiency with gene sequencing means that the UK is more likely to spot and report new outbreaks in the community; ii) FTSE equity benchmarks are heavily-weighted to the miners and gets hit with commodities on demand shocks and iii) Bank of England tightening had been providing support for GBP, and the 16 December BoE decision looks to be even more in the balance/swinging to no change now.”

“It may take a couple of weeks before we know a lot more about Omicron and thus GBP may struggle to quickly recoup recent losses.” 

“We favour EUR/GBP to trace out a 0.8400-0.8500 range for the time being.”

See – UK: Five important structural changes since Brexit – Natixis 

The United Kingdom has been hit by the dual shock of Brexit and COVID-19. What significant changes have resulted from this dual shock? Economists at Natixis point to some significant changes visible today relative to the period prior to 2016.

Foreign trade

“The fall in the United Kingdom’s trade with the EU since 2019 has not been offset by an increase in trade with the rest of the world: the United Kingdom’s export market share has fallen since 2019.”

Direct investment and corporate investment

“Has the UK become more attractive, thanks to the prospect of a less regulated economy; or less attractive, due to its withdrawal from the European single market? We note a decline in direct investment and in corporate investment in the UK relative to the eurozone since 2017.”

Labour market situation

“We see a fall in the number of Europeans working in the UK, a fall in the employment rate in the UK relative to the eurozone and an acceleration in wages and a skewing of income distribution in favour of wage earners thanks to the fall in the labour supply.”

Modernisation and innovation effort; automation

“The UK has seen a growing corporate modernisation and R&D shortfall without a very visible effect on investment for the time being.”

Employment in “sophisticated” sectors 

“How has employment in new technologies, financial services and industry evolved in the United Kingdom since 2016? The market shows job losses relative to the trend for employment in new technologies and manufacturing employment, but not for employment in financial services.”

See – EUR/GBP: Brexit and new covid variant to weigh on the pound – Rabobank

• EUR/USD abandons the area above the 1.1300 mark
• The greenback picks up pace and weighs on the riskier assets.
• ECB’s Lagarde, Fed’s Powell next on tap in the calendar.

The single currency fades part of Friday’s optimism and drags EUR/USD back to the area well south of the 1.1300 mark at the beginning of the week.

EUR/USD looks to Lagarde, Powell, data

EUR/USD so far reverses two consecutive daily advances and returns to the 1.1260 region in the wake of the opening bell in the European markets and against the backdrop of a broad-based recovery in the US dollar.

Indeed, the greenback regains upside traction and manages to leave behind part of Friday’s acute pullback, as investors continue to favour the safer assets in a context of rising uncertainty following the discovery of the newly dubbed omicron variant of the coronavirus in southern Africa.

Earlier in the session, ECB’s I.Schnabel said the inflation is expected to lose traction and she sees it returning to the bank’s target during next year. Schnabel also deemed as premature any attempt to tighten the current monetary conditions.

In the domestic calendar, the European Commission will publish the final Consumer Confidence gauge for the month of November seconded by preliminary inflation figures in Germany during the same period. In addition, Chairwoman C.Lagarde is due to speak in Turin followed by speeches by Board members A.Enria, I.Schnabel, P.Hakkarainen and L. De Guindos.

What to look for around EUR

EUR/USD regained the key 1.1300 barrier and advanced to fresh multi-day highs at the end of last week. The corrective downside in the greenback propped up the move higher in spot, although this is regarded as temporary. Fresh coronavirus concerns sparked after the new variant omicron was discovered last week is likely to keep the demand for the safe haven on the raise at least in the very near term. In the meantime, the outlook for the European currency remains well into the bearish territory on the back of the ECB-Fed policy divergence, increasing COVID-19 cases in Europe as well as some loss of momentum in the economic recovery in the euro area, as per some weakness observed in key fundamentals.

Key events in the euro area this week: German Flash CPI, Final Consumer Confidence, ECB’s Lagarde (Monday) - German labour market report, EMU Flash CPI (Tuesday) - German Retail Sales, EMU/Germany Final Manufacturing PMIs (Wednesday) – EMU Unemployment Rate (Thursday) – EMU/Germany Final Services PMIs, ECB’s Lagarde (Friday).

Eminent issues on the back boiler: Asymmetric economic recovery post-pandemic in the region. Increasing likelihood that elevated inflation could last longer. Pick-up in the political effervescence around the EU Recovery Fund in light of the rising conflict between the EU, Poland and Hungary on the rule of law. ECB tapering speculations.

EUR/USD levels to watch

So far, spot is losing 0.39% at 1.1261 and faces the next up barrier at 1.1332 (weekly high Nov.26) followed by 1.1374 (high November 18) and finally 1.1398 (20-day SMA). On the other hand, a break below 1.1186 (2021 low Nov.24) would target 1.1185 (monthly low Jul.1 2020) en route to 1.1168 (low Jun.19 2020).

EUR/CHF continues its descent. The pair is set to target 1.0255/35, the April 2015 low, on a breach below the 1.04 level, Axel Rudolph, Senior FICC Technical Analyst at Commerzbank, reports.

Rallies to find nearby resistance at the 1.0552 downtrend

“EUR/CHF has so far dropped to 1.0428. This new low was not confirmed by the daily RSI and we may still be seeing some consolidation around the 1.0400 mark.”

“Failure at 1.0400 would introduce scope to the 1.0255/35 April 2015 low and 50% retracement of the move 2015-2018.”

“Rallies will find nearby resistance at the 1.0552 downtrend. Additional resistance lies at 1.0629, the November 2020 low and the 2016 low as well as the 1.0696 19th August low.”

USD/JPY has dropped towards the 55-day moving average (DMA) and the current November low at 112.85/73. Axel Rudolph, Senior FICC Technical Analyst at Commerzbank, notes that it is crucial for the pair to hold above this support area to avoid further falls.

USD/JPY falls out of bed back towards the November low at 112.73 

“While the 55-DMA and the current November low at 112.85/73 hold overall upside pressure should remain in play. Further down sits the 111.66 July high.” 

“Above 115.51/60 is the 117.56 level, the 1998-2021 resistance line and 119.41, the downtrend from 1975.”

Economists at Westpac have upgraded their  US dollar outlook to reflect recent data surprises, which in turn should bring forward Fed rate hikes to mid-2022 and boost the USD. NZD/USD should weaken as a result.

NZD/USD set to reach 0.72 in late 2023

“With a strengthening in the outlooks for US inflation and monetary policy, and the RBNZ adopting a more measured stance than some in markets had expected, we’ve revised down our forecast for the NZD/USD.”

“We now expect that the kiwi will drop to 0.66 by June next year. Further ahead, we expect the NZD/USD will take flight again as the OCR pushes higher, with the NZD/USD set to reach 0.72 in late 2023.”

In 2022-2023, inflation in OECD countries is expected to fall from its high point at the end of 2021. But from 2024, inflation will be higher on average and much more volatile, analysts at Natixis report.

In 2022-2023, probably disinflation

“OECD inflation is peaking at the end of 2021 but is then likely to decline due to the downward correction in commodity prices and intermediate consumption by companies, and the normalisation of the structure of demand.”

“From 2024, it is likely that we will see higher inflation on average, due to the energy transition, and high variability in inflation due to periodic drastic spikes in fossil fuel prices.”

• GBP/JPY struggled to capitalize on its early uptick and met with a fresh supply near the 152.00 mark.
• Brexit-related uncertainties continued weighing on the sterling and exerted pressure on the cross.
• The risk-on impulse in the markets undermined the safe-haven JPY and helped limit further losses.

The GBP/JPY cross dropped to the 150.70-65 area, or the lowest level since October 4 during the early European session, albeit quickly recovered a few pips thereafter. The cross was last seen trading above the 151.00 round-figure mark, nearly unchanged for the day.

The cross gained some positive traction during the early part of the trading action on Monday, albeit struggled to capitalize on the move and met with fresh supply in the vicinity of the 152.00 mark. Persistent uncertainties surrounding the Northern Ireland Protocol and the worsening row over the fishing rights between France and Britain continued acting as a headwind for the sterling. This, in turn, was seen as a key factor that exerted some pressure on the GBP/JPY cross, though a combination of factors helped limit deeper losses.

Firming expectations for an imminent interest rate hike by the Bank of England in December held back traders from placing aggressive bearish bets around the British pound. Apart from this, the risk-on impulse in the markets undermined the safe-haven Japanese yen's relative safe-haven status and extended some support to the GBP/JPY cross. Despite the detection of a new vaccine-resistant COVID-19 variant, the repricing of the likely timing of the Fed's rate hike move triggered a short-covering move across the global equity markets.

The combination of diverging factors warrants some caution for aggressive traders amid absent relevant market moving economic releases from the UK. That said, Friday's sustained break below the very important 200-day SMA supports prospects for an extension of the recent sharp pullback from over five-year high, around 158.20 region touched in October. Hence, any attempted recovery move runs the risk of fizzling out rather quickly and might still be seen as a selling opportunity, which should cap the GBP/JPY cross near the 152.00 mark.

Technical levels to watch

In opinion of FX Strategists at UOB Group, Cable is likely to slip back to the 1.3260 region in the next weeks.

Key Quotes

24-hour view: “We highlighted last Friday that we ‘still see chance for GBP to dip below 1.3300 before a more sizeable rebound can be expected’. We added, ‘the next support at 1.3260 is unlikely to come into the picture’. Our view was not wrong as GBP briefly dipped to 1.3278 before rebounding. Downward pressure has eased and this coupled with oversold conditions suggest that the current movement is part of a consolidation phase. In other words, GBP is likely to trade sideways for today, expected to be within a range of 1.3300/1.3365.”

Next 1-3 weeks: “Our latest narrative was from last Thursday (25 Nov, spot at 1.3335) where we noted that downward momentum has improved and a break of 1.3300 would shift the focus to 1.3260. GBP cracked 1.3300 on Friday, dropped to 1.3278 before rebounding strongly. Oversold shorter-term conditions could lead to consolidation first. As long as 1.3390 (no change in ‘strong resistance’) is intact, there is room for GBP to drop to 1.3260. At this stage, a sustained decline below 1.3260 is unlikely.”

Investors are not convinced about the upside potential for the pound, in the opinion of economists at Rabobank. Therefore, they retain their year-end EUR/GBP 0.85 target.

Downside potential for EUR/GBP to be limited

“Since Brexit issues have not strayed far from the headlines this year and with covid cases remaining high in the UK, we expect investors will remain wary of the pound.”

“we expect that downside potential for EUR/GBP to be limited even on the announcement of a December rate hike from the BoE.” 

“We retain our year-end target of EUR/GBP 0.85.”

For the first time since December 2019 USD/HKD spot is approaching 7.80, the midpoint of the band. Is The Hong Kong Monetary Authority (HKMA) ready for quicker tapering? Economists at ANZ Bank explain their view.

Equities market activities will likely become vibrant in 2022

“The Hong Kong Monetary Authority (HKMA) would increase the issuing of its Exchange Fund Bills again as the Fed mulls a larger scale of tapering.”

“As the Aggregate Balance continues to drop, the liquidity in the banking system will be tightened. Any further withdrawal of liquidity by the HKMA will change future liquidity conditions.”

“Equities market activities will likely become vibrant in 2022. As a result, increasing demand for HKD could offset the impact of Fed tapering next year.”

EUR/JPY is weighing on the 127.94/50 support zone. A break below here would open up the 200-week moving average at 125.67, Axel Rudolph, Senior FICC Technical Analyst at Commerzbank, reports.

The Japanese yen is staging a short-term comeback

“EUR/JPY is revisiting the 127.94/50 August and September lows as well as February 2019 high. The cross is at critical support here and, if slipped through, will most likely target the 200-week ma at 125.67.” 

“Immediate downside pressure should be maintained below the 129.60 November 23 high.”

“Key resistance remains the short-term downtrend at 131.14 and while capped here a negative bias will persist.” 

“Resistance above 129.60 lies at 130.00 and then 130.38, the 55-day ma.”

• DXY regains the upper hand and advances to 96.30.
• US yields trade marginally on the defensive on Monday.
• Chief Powell, Pending Home Sales next on tap in the docket.

The greenback, in terms of the US Dollar Index (DXY), leaves behind part of Friday’s sharp pullback and regains the 96.30 region at the beginning of the week.

US Dollar Index looks to Fed, data

Following the deep correction seen at the end of last week, the index now regains buying interest and advances markedly amidst the cautious note among investors regarding the progress of the new COVID variant and despite the continuation of the leg lower in US yields.

Indeed, the dollar regains part of the ground lost on Friday, as market participants keep favouring the safe haven universe amidst rising cautiousness following the discovery of the omicron variant of the coronavirus.

Later in the session, Pending Home Sales and the Dallas Fed Manufacturing Index are due along with speeches by Chairman Powell and FOMC’s permanent voters R.Clarida, J.Williams and M.Bowman.

What to look for around USD

The dollar saw some profit taking at the end of last week and receded from recent cycle tops just below 97.00 the figure. However, the resumption of the uptrend in the greenback should not take long against the current backdrop of rising COVID concerns, fresh safe haven demand, the “higher-for-longer” narrative around current elevated inflation, rising yields and speculations of a Fed’s lift-off earlier than anticipated.

Key events in the US this week: Pending Home Sales, Fed’s Powell (Monday) – CB Consumer Confidence, Fed Powell’s testimony (Tuesday) – ADP Report, Final Manufacturing PMI, ISM Manufacturing, Fed’s Beige Book (Tuesday) – Initial Claims (Thursday) – Nonfarm Payrolls, Unemployment Rate, Factory Orders, ISM Non-Manufacturing (Friday).

Eminent issues on the back boiler: US-China trade conflict under the Biden’s administration. Debt ceiling issue. Geopolitical risks stemming from Afghanistan.

US Dollar Index relevant levels

Now, the index is gaining 0.23% at 96.29 and a break above 96.93 (2021 high Nov.24) would open the door to 97.00 (round level) and then 97.80 (high Jun.30 2020). On the flip side, the next down barrier emerges at 95.75 (weekly low Nove.26) followed by 95.51 (low Nov.18) and finally 94.96 (weekly low Nov.15).

On Monday, gold price has extended Friday’s late rebound. In the view of FXStreet’s Dhwani Mehta, XAU/USD needs to find acceptance above $1,800 to negate the bearish bias.

Gold’s path of least resistance appears to the downside

“The latest developments surrounding the new variant combined with the market’s reassessment of the global tightening expectations will lead the sentiment, impacting the dollar’s as well as gold’s valuations. Investors will also look forward to the speeches from Fed Chair Jerome Powell and ECB President Christine Lagarde for fresh trading incentives.”

“The Relative Strength Index (RSI) is trading flatlined but below the 50 level, suggesting that the renewed upside could remain short-lived unless the metal finds acceptance above the $1,800 level.”

“Strong support awaits around $1,780, the previous week’s lower range, below which the November 3 low of $1,859 will be on the sellers’ radars.”

“On the flip side, the bulls need to hold the 21-SMA support at $1,793 for a fresh advance towards the horizontal 200-SMA at $1,809. The buyers will then look to retest Friday’s high of $1,816 if the rebound gathers steam going forward.”

• USD/CHF gained strong positive traction and recovered a part of Friday’s slump to a two-week low.
• The risk-on flow undermined the safe-haven CHF and extended support amid renewed USD strength.
• Expectations for a shift in the Fed’s policy outlook might cap gains for the greenback and the major.

The USD/CHF pair maintained its bid tone through the early European session and climbed to a fresh daily top, around the 0.9270 region in the last hour.

A combination of factors assisted the USD/CHF pair to attract some buying on the first day of a new week and recover a part of Friday's slump to a two-week low, around the 0.9215 region. The global risk sentiment stabilized a bit as investors preferred to wait and see if the new Omicron coronavirus variant would eventually derail the economic recovery. This was evident from a goodish bounce in the equity markets, which undermined the safe-haven Swiss franc and acted as a tailwind for the USD/CHF pair.

Meanwhile, the risk-on flow was reinforced by a strong pickup in the US Treasury bond yields. This helped revive the US dollar demand and further contributed to the USD/CHF pair's move up. That said, the repricing of the likely timing of the Fed's interest rate hike move might hold back the USD bulls from placing aggressive bets and cap any meaningful upside for the major. The detection of a new vaccine-resistant coronavirus variant might have forced investors to reassess the Fed's (hawkish) policy outlook.

Hence, it will be prudent to wait for a strong follow-through buying before confirming that the corrective pullback has run its course and positioning for any further intraday appreciating move. Nevertheless, the USD/CHF pair, so far, has shown some resilience below the 50-day SMA, which should now act as a key pivotal point for short-term traders. Market participants now look forward to the US economic docket, featuring the only release of Pending Home Sales data later during the early North American session.

This, along with the US bond yields, might influence the USD price dynamics and provide some impetus to the USD/CHF pair. The key focus, however, will remain on developments surrounding the coronavirus saga, which will play a key role in driving the broader market risk sentiment and demand for the safe-haven CHF. The combination of factors could, in turn, produce some trading opportunities around the major.

Technical levels to watch

Here is what you need to know on Monday, November 29:

The intense flight to safety on Friday triggered a sharp decline in US Treasury bond yields and caused global stock indexes to suffer heavy losses. The greenback weakened against the safe-haven currencies, such as the CHF and JPY, but outperformed high beta currencies. Despite concerning news surrounding the new coronavirus variant Omicron, the market mood seems to have improved modestly early Monday. Investors await the German inflation report and euro area business sentiment data but risk perception will remain as the primary market driver at the start of the week.

Reflecting the risk-averse market environment, the S&P 500 Index lost more than 2% on Friday, the 10-year US Treasury bond yield fell 9.4% and the US Dollar Index dropped 0.75%. US stock index futures are up between 0.4% and 1% in the early European session on Monday. Markets are trying to figure out if the Fed will be forced to adopt a cautious stance with regards to policy tightening in the face of potential economic slowdown.

Although the omicron virus had not yet been detected in the US, Dr Anthony Fauci, the nation's top infectious disease doctor and the president's chief medical adviser, said Sunday it was inevitable that the variant would appear in the US.

Meanwhile, vaccine producers are testing the effectiveness of current vaccines against the new variant but they are not expected to announce any results for the next two weeks or so. Pfizer and Moderna both noted that it would take them around 100 days to adjust the vaccine if needed. 

Covid Special Report: How will worst coronavirus variant seen to date affect markets this week?

EUR/USD climbed above 1.1300 but lost its bullish momentum at the start of the new week. The pair is currently trading in the negative territory around 1.1280. 

USD/JPY pair lost more than 200 pips on Friday and opened with a small bullish gap on Monday. The pair stays within a touching distance of 113.00.

GBP/USD struggled to gain traction ahead of the weekend as investors reassess the Bank of England's rate hike prospects. The pair stays in a consolidation phase above 1.3300 to start the week.

AUD/USD and NZD/USD both fell sharply on Friday. Although these pairs stage a rebound on Monday, they remain sensitive to changes in sentiment. 

Gold capitalized on plunging US T-bond yields during the American trading hours but erased a large portion of its daily gains before ending the week around $1,790. XAU/USD is edging higher toward $1,800 in the early trading hours of the European session.

The worsening energy demand outlook amid renewed concerns over the new coronavirus variant causing lockdowns and restrictions caused oil prices to fall sharply. The barrel of West Texas Intermediate lost more than 12% on Friday and was last seen rising 5% at $71.50. The commodity-sensitive CAD struggled to find demand and USD/CAD touched 1.2800 for the first time since late September. The pair is currently edging lower toward mid 1.2700s.

Cryptocurrencies: Bitcoin fell below $54,000 on Sunday but reversed its direction and started to advance higher toward $60,000. Ethereum trades in the positive territory above $4,300 after testing $4,000 over the weekend.

According to FX Strategists at UOB Group, EUR/USD has now moved into a consolidative phase.

Key Quotes

24-hour view: “We highlighted last Friday that ‘indicators are turning neutral and EUR is likely to consolidate and trade sideways’. The sudden surge in upward momentum came as a surprise as EUR soared to 1.1330. The rapid rise appears to be overdone and EUR is unlikely to strengthen further. For today, EUR is expected to trade sideways between 1.1260 and 1.1325.”

Next 1-3 weeks: “We have expected EUR to weaken since early last. In our latest narrative from last Thursday (25 Nov, spot at 1.1200), we highlighted that EUR could ‘weaken to 1.1160’. We added, EUR ‘is expected to stay weak as long as it does not move above 1.1270’. We did not anticipate the manner by which EUR jumped by +0.99% (NY close of 1.1317). The break of 1.1270 indicates that EUR weakness has come to an end. The current movement is viewed as part of a consolidation phase and EUR is likely to trade between 1.1220 and 1.1360 for now.”

French Finance Minister Bruno Le Maire reaffirmed on Monday; he has no major concerns over the country’s economic growth.

He said: “Need to do all we can to avoid new covid restrictions.”

When asked about the French state aid to help companies in covid crisis, he replied, “we will always be there."

This comes amidst the new Omicron covid variant outbreak in South Africa, which has unnerved investors once again.

Market reaction

EUR/USD remains under pressure below 1.1300 amid virus woes, as the dust settles over Friday’s volatile session.

At the time of writing, EUR/USD is trading at 1.1275, down 0.35% so far.

• USD/JPY struggles around two-week low after dropping the most since March 2020.
• 50-DMA, previous resistance line from March restrict short-term downside.
• October’s top acts as extra upside filter ahead of the latest multi-month peak.

USD/JPY remains pressured around a 13-day-low, reversing the early Asian rebound ahead of Monday’s European session.

The yen pair sellers cheered broad risk-off mood the previous day to break an ascending support line from late September, now resistance around 114.00.

The downside, however, witnesses a steady RSI line and the 50-DMA level near 113.15 as immediate challenges to tackle.

Even if the USD/JPY sellers break 113.15 DMA support, the resistance-turned-support line from March 2021, close to 112.80, will precede September’s peak of 112.00 to challenge the pair’s further weakness.

Alternatively, a clear upside break of the immediate resistance line, previous support around 114.10, will direct USD/JPY bulls towards the last month’s high surrounding 114.70.

Should the pair buyers keep reins past 114.40, the 115.00 threshold and the recent high near 115.50 can test the advances.

USD/JPY: Daily chart

Trend: Recovery moves expected

According to advanced figures from CME Group for natural gas futures markets, open interest reversed four consecutive daily drops and rose by around 14.3K contracts on Friday. On the other hand, volume went down by nearly 27K contracts.

Natural Gas now targets the $6.00 mark

Friday’s continuation of the rebound in prices of the natural gas was amidst rising open interest, indicative that further gains appear favoured in the very near term. Against this, the next hurdle of note comes at the $6.00 mark per MMBtu for the time being.

• GBP/USD witnessed a subdued/range-bound price action on the first day of a new week.
• Renewed USD buying acted as a headwind for the major amid Brexit-related uncertainties.
• Expectations for an imminent BoE rate hike extended some support and limit the downside.

The GBP/USD pair lacked any firm directional bias on Monday and seesawed between tepid gains/minor losses, just below mid-1.3300s heading into the European session.

The pair struggled to capitalize on Friday's goodish recovery from the 1.3280-75 region, or the lowest level since December 2020 and witnessed a subdued price action on the first day of a new week. The global risk sentiment stabilized a bit as investors preferred to wait and see if the new Omicron coronavirus variant would eventually derail the economic recovery. The risk-on flow led to a solid rebound in the US Treasury bond yields, which helped revive the US dollar demand and acted as a headwind for the GBP/USD pair.

On the other hand, the British pound continues to be weighed down by persistent Brexit-related uncertainties. In the latest development, the European Commission's vice president Margaritis Schinas told Britain on Saturday it has to sort out its own migrant problems post-Brexit. This comes amid the worsening row over the fishing rights between France and Britain, which further held back traders from placing bullish bets around the GBP/USD pair. That said, expectations for an imminent rate hike by the Bank of England extended some support.

There isn't any major market-moving economic data due for release from the UK on Monday, while the US economic docket features the only release of Pending Home Sales. This, in turn, leaves the GBP/USD pair at the mercy of the USD price dynamics and fresh developments surrounding the Brexit saga. Apart from this, the broader market risk sentiment, along with the US bond yields might influence the USD price and provide some impetus to the major.

Technical levels to watch

• USD/CAD reverses pullback from nine-week top, recently picking up bids.
• 78.6% Fibonacci retracement, July’s top and upper line of 12-day-old channel challenge buyers.
• Overbought RSI conditions add to upside filters, bears can rest assured below 50-DMA.

USD/CAD pares intraday losses around 1.2750, down 0.25% on a day as European traders brace for Monday’s bell.

The Loonie pair jumped to the highest levels since late September the previous day but couldn’t cross 78.6% Fibonacci retracement (Fibo.) August-October downside and July’s high surrounding 1.2810. Adding strength to the 1.2810 resistance is the short-term channel’s upper line/

In addition to the failures to cross the key resistance, overbought RSI conditions also challenge the USD/CAD buyers, suggesting smoother roads for the pair’s downside.

That said, the support line of the stated channel, around 1.2660, restricts the short-term downside of the pair, a break of which will highlight 50% Fibo. level of 1.2620.

It should be noted, however, that the USD/CAD weakness past 1.2620 will be challenged by a 50-DMA level of 1.2532.

On the contrary, a daily closing past 1.2810 will aim for September’s high of 1.2900 before August month’s peak of 1.2950 and the 1.3000 psychological magnet lure the pair bulls.

USD/CAD: Daily chart

Trend: Pullback expected

Quek Ser Leang at UOB Group’s Global Economics & Markets Research noted USD/IDR is likely to break above the 14,385 level in the short term.

Key Quotes

“We expected USD/IDR to trade within a 14,180/14,300 range last week. However, it rose to 14,340 last Friday, and today, it extended its advance and appears to have breached a declining trend-line resistance. Upward momentum is building and this coupled with the breach of the trend-line is likely to lead to further USD/IDR strength.”

“A break of Nov’s high of 14,385 would not be surprising even though it is too soon to expect an advance to 14,470. The current USD/IDR strength is deemed intact as long as it does not move below the strong support near 14,250.”

Russian Deputy Prime Minister Alexander Novak said on Monday, there is “no need for emergency measures in the oil market.”

He added that OPEC and its allies (OPEC+) partners did not call to review the current deal.

CME Group’s flash data for crude oil futures markets noted traders added around 14.2K contracts to their open interest positions at the end of last week, clinching the fifth daily build in a row. Volume, in the same direction, rose by nearly 1.08M contracts, the largest single-day build so far this year.

WTI now looks to regain $80.00

Prices of the WTI dropped to the $67.50 region on Friday. The sharp downtick was accompanied by increasing open interest and volume, allowing for further retracements in the very near term. While the $67.50 region holds the downside, crude oil prices should re-focus the attention to the key $80.00 barrier in the very near term.

• Gold price rebounds but not out of the woods yet while below $1,800.
• Omicron covid variant woes will continue to play out, impacting USD and gold.
• Gold looks to extend rebound amid renewed coronavirus fears.

Gold is looking to find its feet on Monday after wild swings witnessed on Friday, as the world was once again rattled by fresh concerns over a new covid variant detected in South Africa. The renewed virus concerns continue to underpin gold’s safe-haven appeal while markets reassess the Fed’s tightening expectations. Investors are likely to remain edgy amid choppy markets, as the latest covid updates and risk sentiment will continue to dominate.

Read: Gold Price Forecast: XAU/USD needs to find acceptance above $1,800 to negate the bearish bias

Gold Price: Key levels to watch

The Technical Confluences Detector shows that the gold price is likely to face a stubborn resistance at $1,799-$1,800, which is the intersection of the Fibonacci 23.6% one-month and Bollinger Band one-hour Middle.

If the latter caves in, then the Fibonacci 61.8% one-day at $1,802 could get tested. Further up, gold bulls will need extra zest to take out the critical Fibonacci 38.2% one-week at $1,807.

The confluence of the SMA200 four-hour and pivot point one-day R1 at $1,809 will challenge the bearish commitments.

The next stop for gold bulls is seen around $1,816, where the previous week’s high, previous month’s high and pivot point one-month R1 merge.

On the flip side, the immediate downside seems guarded by a dense cluster of healthy support levels around $1,795.

At that point, the Fibonacci 23.6% one-week coincides with the SMA100 one-day, Fibonacci 38.2% one-day and SMA200 one-day.

The next demand area at $1,789, the Fibonacci 38.2% one-month, will come into play, below which floors will open up towards Friday’s low of $1,780.55.           

Here is how it looks on the tool

About Technical Confluences Detector

The TCD (Technical Confluences Detector) is a tool to locate and point out those price levels where there is a congestion of indicators, moving averages, Fibonacci levels, Pivot Points, etc.  If you are a short-term trader, you will find entry points for counter-trend strategies and hunt a few points at a time. If you are a medium-to-long-term trader, this tool will allow you to know in advance the price levels where a medium-to-long-term trend may stop and rest, where to unwind positions, or where to increase your position size.

• EUR/GBP pares the biggest daily jump in three weeks below short-term key moving average.
• Global scientists, policymaker recheck initial fears from the South African covid variant.
• US, Israel and Australia flash positive signals, UK pushes for the emergency G7 meeting.
• Speech from ECB’s Lagarde, Brexit updates are important too.

EUR/GBP takes offers to refreshes intraday low near 0.8455, down 0.23% intraday ahead of Monday’s London open.

The cross-currency pair jumped the most since early November the previous day amid grim concerns over the South African variant of the coronavirus. However, the recent positive updates concerning Omicron, as the World Health Organization (WHO) dubbed it, seem to have underpinned the market’s cautious optimism.

Even so, the UK is up for calling an emergency Group of Seven (G7) meeting to discuss the pandemic problem. “The British government announced new measures on Saturday to try to slow the spread of the new COVID-19 variant, toughening rules for people arriving in Britain and ordering the use of masks in retail settings and on public transport in England,” said Reuters.

Elsewhere, Brexit tensions remain on the cards and add to the additional challenge for the British Pound (GBP). “UK Brexit Minister Lord David Frost said on Friday that, while we would still like to find a negotiated solution with the EU on the Northern Ireland Protocol, the gap between our positions is significant and we are ready to use Article 16,” said Reuters on Friday. On the same line were the ongoing UK-France tussles over fishing rights.

Above all, the Bank of England’s (BOE) versus the European Central Bank (ECB) story gains major attention and keeps the EUR/GBP sellers hopeful. The reason could be linked to the ECB policymakers’ sustained rejection of the monetary policy tightening and mixed data contrast to the recently firmer UK details and mixed comments from the BOE board.

It’s worth observing that the latest updates from the US National Institutes of Health (NIH) and Israeli covid official Professor Dror Mevorach joined Australia’s Health Minister Greg Hunt to underpin the latest rebound in the US Treasury yields and the stock futures.

Looking forward, the German Harmonized Index of Consumer Prices (HICP) for November, expected 5.4% YoY versus 4.6% prior, will offer immediate direction to the EUR/GBP price moves. Additionally, updates concerning Brexit and the covid strain, as well as comments from ECB President Christine Lagarde, adds to the watcher’s list.

Technical analysis

Failures to cross 50-DMA direct EUR/GBP sellers towards multiple lows marked during October around 0.8420 before directing the quote to the 0.8400 threshold. Additionally challenging the pair buyers is the descending trend line from September 29, near 0.8560.

USD/MYR could extend the advance to the 4.2500 level and beyond, according to Quek Ser Leang at UOB Group’s Global Economics & Markets Research.

Key Quotes

“While we expected USD/MYR to strengthen last week, we were of the view that ‘the prospect for a break of Sep’s high at 4.1990 is not high’. We clearly underestimated USD/MYR strength as it not only cracked 4.1990 but also rose above the Aug’s top of 4.2430 (high of 4.2470 on Friday).”

“The rapid rise is accompanied by strong upward and USD/MYR could continue to advance this week. The next resistance level of note is at 4.2500 followed by 4.2600. On the downside, 4.2200 is a strong support ahead of the “break-out” level of 4.1990.”

Open interest in gold futures markets rose by around 1.9K contracts on Friday after six consecutive daily drops, as shown by preliminary readings from CME Group. In the same line, volume went up by around 65.8K contracts, reversing two consecutive daily pullbacks.

Gold remains supported around $1,780

Gold prices extended the positive performance on Friday amidst rising open interest and volume, all indicative that extra gains appear in the pipeline in the very near term. That said, the precious metal now targets the key barrier at the $1,800 mark per ounce troy, while decent contention is found around $1,780.

Quek Ser Leang at UOB Group’s Global Economics & Markets Research comments on the prospects for USD/THB in the near term.

Key Quotes

“While we expected USD/THB to strengthen last Monday (22 Nov, spot 32.87), we were of the view that ‘the declining trend-line resistance is unlikely to come into the picture’. However, USD/THB easily cracked the trend-line and surged to a high of 33.76 on Friday. Strong upward momentum is likely to lead to further USD/THB strength.”

“That said, the year-to-date high at 34.00 could be just out of reach for this week. Support is at 33.48 followed by a solid level at 33.14. Looking ahead, the next resistance level above 34.00 is at 34.25.”

• USD/TRY holds onto Friday’s recovery moves above short-term support line.
• MACD teases bulls as the quote heads to weekly horizontal resistance.
• 61.8% Fibonacci retracement limits immediate declines below October’s high.

USD/TRY remains range-bound near $12.40 heading into Monday’s European session.

The Turkish lira (TRY) pair snapped a two-day downtrend the previous day while staying past a weekly ascending support line.

Given the MACD line teasing bullish cross, as the quote remains above the short-term rising support line, USD/TRY buyers are likely to aim for the one-week-old horizontal resistance near $12.70.

Following that, the $13.00 threshold may offer an intermediate halt during the run-up to the recently flashed record top of $13.49.

Meanwhile, a downside break of the aforementioned support line near $12.30 will aim for a 50% Fibonacci retracement (Fibo.) level of the November 18-23 rally, around $12.00.

During the USD/TRY weakness below the $12.00 threshold, the previous resistance line from November 23 and 61.8% Fibo., respectively around $11.80 and $11.60, will challenge the bears before October’s peak of $9.85.

USD/TRY: Four-hour chart

Trend: Further upside expected

• EUR/USD consolidates 2021’s biggest daily gains as US Treasury yields underpin USD rebound.
• NIH contradicts ECDC’s fears like Fed’s Bostic did to ECB’s Lagarde.
• Global scientists, policymakers placate fears of Omicron even as national border checks return to the table.
• German HICP inflation data, US President Biden and ECB’s Lagarde will be eyed too.

EUR/USD refreshes intraday low to 1.1274, down 0.43% on a day to reverse Friday’s virus-led rebound during early European morning on Monday.

The reason could be linked to the upbeat comments from the US versus the prevailing fears in the Eurozone. However, the pair traders remain cautious ahead of the preliminary reading of the German Harmonized Index of Consumer Prices (HICP) for November, expected 5.4% YoY versus 4.6% prior. Following that, speeches from European Central Bank (ECB) President Christine Lagarde, Federal Reserve Chairman Jerome Powell and US President Joe Biden will be crucial for near-term direction.

Having identified zero cases of the fresh COVID-19 infections in the US, the National Institutes of Health (NIH) officials renewed hopes that the virus vaccines, as well as the booster doses, can help overcome the latest challenge to the global economy. On the same lines were comments from Israeli Professor Dror Mevorach who terms ‘Omicron’ as less severe than the ‘Delta’ version of the coronavirus.

On the other hand, were statements from the European Centre for Disease Prevention and Control (ECDC), which crossed wires via Reuters during the weekend while saying, “The omicron variant is the most divergent variant in significant numbers.” “We are concerned omicron may significantly reduce vaccines' effectiveness and boost the risk of reinfections,” added ECDC.

The contradiction over virus woes is a reflection of the policymakers’ latest comments and supports the Fed versus ECB battle, which in turn favors the EUR/USD bears. That said, ECB’s Lagarde mentioned, per Reuters, "There is an obvious concern about the economic recovery [of the euro zone] in 2022, but I believe we have learned a lot.” Further, Atlanta Federal Reserve President Raphael Bostic spoke during the weekend as well while saying, “Covid is the source of inflation.”

Amid these plays, US 10-year Treasury yields rise 4.5 basis points (bps) to 1.53% while S&P 500 Futures add 0.80% gains on a day by the press time. It should be noted that the yields and the US stocks dropped the most since early pandemic days on Friday after the World Health Organization’s (WHO) announcement to mark it as a “variant of concern”.

Looking forward, the German inflation number for November may probe immediate declines of the EUR/USD prices but a likely continuation of the Fed versus ECB rate hike story may keep the major currency pair directed towards the south.

Technical analysis

Although the 10-DMA, around 1.1280 by the press time, restricts the immediate downside of the EUR/USD pair, recovery moves remain off the table until the quote stays below a monthly resistance line around 1.1445-50.

• USD/INR consolidates the biggest daily jump since mid-June.
• Sluggish Momentum, failures to cross July’s top keep pair sellers hopeful.
• 50-DMA, previous resistance line challenge bears, 75.63-65 becomes the key hurdle for the bulls.

USD/INR remains on the back foot around 74.85, down 0.20% intraday during early Monday morning in Europe. The Indian rupee (INR) pair poked the monthly high the previous day while posting the heaviest daily jump since June 17.

However, failures to provide a daily closing beyond July’s peak and sluggish Momentum line favor short-term bears.

That said, the latest pullback is likely to extend towards a convergence of the 50-DMA and previous resistance line from October 12, around 74.60-58.

It should be noted, though, that any further downside past 74.58 will not hesitate to challenge 38.2% Fibonacci retracement (Fibo.) of February-October upside and an ascending support line from September 01, respectively around 74.30 and 74.10.

On the flip side, a daily closing beyond July’s high of 75.01 will aim to cross the double tops surrounding 75.65. Following that, a run-up towards the 76.00 can’t be ruled out.

To sum up, USD/INR bulls remain on the driver’s seat but intermediate pullbacks can be expected.

USD/INR: Daily chart

Trend: Further weakness expected

• Asian equities trade mixed as yields, US stock futures rebound.
• Global scientists, policymakers race to ascertain fears of South African covid variant.
• Fed versus the rest battle can keep greenback buyers hopeful.
• Eyes on Fed’s Powell, US President Biden for fresh impulse.

Asian shares grind lower as bears take a breather to reconfirm the covid variant fears during early Monday. The need for checking arises as policymakers from the US, Israel and Australia sound hopeful of overcoming the virus variant that roiled global market sentiment the previous day. Adding to the bullish bias could be the recovery in the US Treasury yields, backed by hawkish comments from Atlanta Federal Reserve President Raphael Bostic.

That said, MSCI’s index of Asian Pacific shares outside Japan drops 0.14% whereas Japan’s Nikkei 225 prints a 0.50% intraday loss, recovering of late, ahead of Monday’s European session.

It’s worth noting that the Asia-Pacific markets witnessed the heaviest daily fall in over three months on Friday amid chatters over the heavy mutation capability of the covid’s South African version. The same backed the World Health Organization’s (WHO) announcement to mark it as a “variant of concern” while also pushing the UK government to call for the special Group of Seven (G7) meeting.

On the contrary, zero cases of the virus strain in the US pushed the National Institutes of Health (NIH) officials to renew hopes that the virus vaccines, as well as the booster doses, can help overcome the latest challenge to the global economy. On the same lines were comments from Australia Health Minister Greg Hunt who said, “We are vastly, vastly better prepared than the overwhelming majority of the world, and I say that with great respect to the immense work that’s been done globally.”  Furthermore, Reserve Bank of New Zealand’s (RBNZ) Chief Economist Yuong Ha said in a Wall Street Journal (WSJ) interview on Monday, the new Omicron covid strain is unlikely to alter the central bank’s rate hike plans.

Against this backdrop, markets in Australia and New Zealand remain directionless while those from China fail to cheer dovish comments from the People’s Bank of China (PBOC).

Indonesia’s IDX print mild gains whereas South Korea’s KOSPI and India’s BSE Sensex lick Friday’s wounds with minimal losses.

It’s worth noting that Japan and China recently announced the rejection of flights from South Africa and connected nations.

Moving on, German inflation numbers will join US housing data to decorate Monday’s calendar ahead of speech from US President Joe Biden and Fed Chair Jerome Powell. Also in the spotlight were comments from the Bank of Canada (BOC) and the European Central Bank (ECB) policymakers’’ scheduled speeches.

Starting out a fresh week in early trades, the risk sentiment took a big hit on the renewed fears over the Omicron covid variant.

Although the sentiment improved over the last hours, with the major economies quickly acting to curb the virus spread while many industry and health experts opine that the effects of the new variant are unlikely to be more severe.

Among the latest updates, China's aviation regulator said on Monday that it would suspend Air France from operating four Paris-Tianjin flights from Nov. 29 due to COVID-19 cases.

Japanese media outlets reported that entry for all foreigners will be banned almost immediately and an announcement to that effect is expected as early as this afternoon. 

The Australian state of Victoria announces a 14-day quarantine requirement for arrivals from parts of Africa.

The country’s Health Minister Greg Hunt said, “We are vastly, vastly better prepared than the overwhelming majority of the world, and I say that with great respect to the immense work that’s been done globally.”

“Australia’s National Security Committee will meet today to review the evidence and consider actions surrounding the omicron variant and a National Cabinet meeting will be held in the next 48 hours,” Hunt said.

Meanwhile, the World Health Organization (WHO) said, “The initial reported infections were among university students,” adding that younger patients tend to have milder symptoms.

“Symptoms linked to the omicron coronavirus variant have been mild so far, according to a Covid-19 adviser to the South Africa government and the Pretoria doctor who first sounded the alarm about the new strain,” per Bloomberg.

developing story ....

• Silver refreshes intraday high, extends bounce off six-week low.
• Bearish MACD signals, sustained break of two-month-old previous support line favor sellers.
• Multiple levels from August restrict immediate downside, September’s bottom lure bears.

Silver (XAG/USD) consolidates monthly losses around the lowest levels since mid-October during early Monday.

The bright metal dropped to the multi-day low following the previous week’s clear downside break of an ascending trend line from September 29 and 50-DMA. However, a three-month-old horizontal support area triggered the quote’s latest bounce.

Even so, bearish MACD signals and sustained trading below the stated support-turned-resistance line keep XAG/USD sellers hopeful.

That said, the 38.2% Fibonacci retracement (Fibo.) level of July-September downside and 50-DMA, respectively around $23.50 and $23.60, limit the commodity’s rebound

Should the silver buyers manage to cross the $23.60 hurdle, 50% Fibo. level of $24.10 and the stated previous support line, around $24.20 by the press time, will be in focus.

Alternatively, the $22.91-85 support area becomes the key challenge for the short-term sellers ahead of August month’s low near $22.20 and the $22.00 threshold.

Given the silver bears stay on the front foot past $22.00, the yearly bottom surrounding $21.40 may challenge the commodity bears before directing them to the $20.00 psychological magnet.

Silver: Daily chart

Trend: Bearish

The Australian economy is likely to have contracted in the third quarter of 2021 amid renewed covid lockdowns, although remains poised for a quick upturn, the latest Reuters poll of 24 economists showed on Monday.

Key quotes

“Economists showed that the A$2.07 trillion ($1.5 trillion) economy contracted 2.7% during the July-September quarter. Forecasts ranged from -3.8% to -1.9%.”

“The year-over-year growth was estimated at 3.0% but that was over a decline of 3.6% in the third quarter last year, revealing no substantial growth.”

“Despite the setback to economic growth last quarter, economists do not see that trend turning into a full-blown recession.”

“With about 86% of Australia's adult population now vaccinated and most restrictions eased, a swift recovery is anticipated on higher consumer spending.”

• AUD/USD Price Analysis: Battles previous support around 0.7150 on oversold RSI

Reserve Bank of New Zealand (RBNZ) Chief Economist Yuong Ha said in a Wall Street Journal (WSJ) interview on Monday, the new Omicron covid strain is unlikely to alter the central bank’s rate hike plans.

Key quotes

“RBNZ would have raised the cash rate even if Omicron had become known before the central bank's policy statement.”

“The situation now is different from August, when the RBNZ had delayed a rate increase due to a Delta variant outbreak that followed months of zero COVID-19 cases.” 

"The difference is we are now transitioning into a new Covid protection framework.”

"What that means is we are getting used to the idea of living with Covid, so Omicron, I don't think it changes the outlook, it probably just reinforces the downside risks we saw in the projections.”

"If Omicron turns out to be a massive game-changer, that might be kind of like August where we just took a pause.”

 “The Omicron COVID-19 variant would need to have a dramatic economic impact to deter the Reserve Bank of New Zealand from continuing to raise interest rates.”

Market reaction

NZD/USD fails to benefit from these comments, as it trades modestly flat around 0.6830, at the press time.

• GBP/USD is in bearish consolidation amid fresh covid and Brexit jitters.
• Safe-haven USD holds the reins starting out a fresh week.
• Covid updates, risks trends to lead the sentiment amid a light docket.

GBP/USD is trading modestly flat below 1.3350, consolidating its recovery from eleven-month lows of 1.3278 amid a minor improvement in the risk sentiment.

Despite the risk reset, the risks remain skewed to the downside for the major, as it continues to bear the brunt of the latest Omicron covid variant and ongoing Brexit woes.

Omicron woes add to the Brexit pain

The risk sentiment took a hit in early Asia, helping the rebound in the US dollar across the board, as fears over the latest covid strain took over and rattled markets. South Africa's latest surge of COVID-19 cases, apparently driven by the new variant is leading countries around the world to impose new restrictions.

However, markets are trying to find their feet amid a few optimistic news concerning the new variant, with Professor Dror Mezorach, head of the coronavirus department at Hadassah University Hospital Ein Karem, noting that the clinical condition of people infected with Omicron is encouraging.

Despite the risk recovery, the sentiment around the pound is likely to remain undermined, courtesy of the ongoing Brexit concerns. The European Commission's vice president Margaritis Schinas on Saturday told Britain it has to sort out its own migrant problems post-Brexit.

Meanwhile, French President Emmanuel Macron hit out at the UK Prime Boris Johnson on Friday over a tweeted letter, accusing him of being “not serious”. This is in light of the persistent tensions over the French-UK fishing row.

Looking ahead, amid the data-light UK and US economic calendar on Monday, the Omicron covid variant updates and their impact on the risk sentiment will continue to lead the way.

Investors will reassess the Bank of England’s (BOE) rate hike expectations, in the face of the latest covid strain, which could be an additional downer for the British currency.

GBP/USD: Technical levels to consider

One-month risk reversal (RR) of USD/CHF, a gauge of calls to puts, drops for the fourth consecutive day to recently around -0.012 per the data source Reuters.

It’s worth noting that the daily RR slumped the most in a month the previous day amid the market’s risk-off mood, down -0.413, whereas the weekly reading marked the lowest prints in 14 months with a -0.513 level for the week ended on November 26, per Reuters.

Hence, it appears that the options market bears are holding controls tightly amid indecision over the Fed’s next move and fresh covid woes triggered by ‘Omnicron’.

That said, the USD/CHF pair consolidates the biggest daily losses since March 2020 by the press time of early Monday, up 0.30% intraday around 0.9255.

Moving on, speeches from US President Joe Biden and Federal Reserve (Fed) Chairman Jerome Powell will be important for the USD/CHF traders to watch for fresh impulse.

• AUD/USD prints mild gains, pokes intraday top to consolidate Friday’s losses.
• September’s low, monthly resistance line also challenges recovery moves.
• 0.7000-6990 appears a tough nut to crack for the bears.

AUD/USD challenges intraday high around 0.7145, up 0.10% on a day during early Monday. In doing so, the Aussie pair keeps late Friday’s bounce off a three-month low to challenge the yearly support-turned-resistance.

Given the oversold RSI conditions, the latest corrective pullback is likely to cross the 0.7150 immediate hurdle. However, September’s low and a descending trend line from November 02, around 0.7170 and 0.7230 respectively, will challenge the recovery moves.

Even if the AUD/USD bulls manage to cross the 0.7230 hurdle, July’s low and the mid-November’s swing high, close to 0.7290 and 0.7370 in that, will act as additional filters to the north for them to overcome.

Alternatively, the yearly low of 0.7105 remains in the spotlight during the fresh declines.

That said, the 38.2% Fibonacci retracement (Fibo.) of March 2020 to February 2021 run-up around 0.7050 and a horizontal area comprising multiple levels marked between June and November 2020, near 0.7000-6990, will be the key levels to follow the fall past-0.7105.

Overall, AUD/USD bears remain in the driver’s seat but the further downside has bumpy road.

AUD/USD: Daily chart

Trend: Further weakness expected

The European Central Bank (ECB) doesn’t need to intervene in order to tighten the monetary policy now, as inflation is driven by temporary factors, the central bank’s Executive Board member Fabio Panetta said over the weekend.

Key quotes

“In some countries, the increase in prices has generated angst.”

“The central bank is not intervening because if it did, it would create more damage than benefit. It’s like an illness, not all medicines are good for all illnesses.”

Current inflation is “bad,” but also temporary -- driven by supply chain snags and energy price increases, which “are bound to be overcome.”

“If inflation looked like becoming more permanent, he would be among the first in favor of ECB intervention.”

Market reaction

EUR/USD is pressuring lows near 1.1280, down 0.33% on the day, at the time of writing. Markets have shrugged off ECB President Christine Lagarde’s optimistic comments, citing that the “Eurozone is in a better shape facing a new covid wave.”

An official from the People's Bank of China (PBOC) indicated on Monday that the country's central bank will be keeping the liquidity taps open.

Key quotes

“PBOC will enact prudent monetary policy.”

“Will maintain ample liquidity in order to support employment.”

• GBP/JPY bulls are eyeing a significant correction for the opening sessions. 
• Risks remain to the downside considering the unknown around coronavirus new variant. 

GBP/JPY is firmer at the start of the week despite the recent volatility across financial markets at the end of last week pertaining to the new coronavirus variant that is potentially resistant to current vaccines. The yen was bid up and the best performing currency as flows move into safe havens which sent GBP/JPY down heavily. 

However, the markets are taking a breather at the start f the week and consolidation is in plat. This opens the risk of an upside correction in the cross the following illustrates where there is potential for a deep correction to test old support in a 50% mean reversion:

GBP/JPY daily chart

• US 10-year Treasury yields, S&P 500 Futures consolidate the biggest daily losses since early pandemic days.
• Comments from US NIH officials, Israel help to cut back on the covid variant fears.
• Fed’s Bostic rejects challenges to Fed’s rate hike, ECB’s Lagarde got reason to defend easy money policies.
• Speeches from US President Biden, Fed Chair Powell will be the key.

Having witnessed a large risk-off move in the market’s response to the South African origin COVID-19 variant, sentiment improves during early Monday as health officials from the US and Israel placate fears of a widespread outbreak of the deadly virus strain.

Having identified zero cases of the fresh COVID-19 infections in the US, the National Institutes of Health (NIH) officials renewed hopes that the virus vaccines, as well as the booster doses, can help overcome the latest challenge to the global economy. On the same lines were comments from Israeli Professor Dror Mevorach who terms ‘Omnicron’ as less severe than the ‘Delta’ version of the coronavirus.

It’s worth noting that Australia and Canada become the latest among the top-tier economies to announce fresh infections relating to the stated virus variant, preceding the UK, Italy, Belgium and Israel.

Following the initial breakout from South Africa, the World Health Organization (WHO) termed the covid strain as “a variant of concern” while also dubbing it as ‘Omnicron’. The risk appetite roiled the previous day after multiple countries raised concerns over the fresh version of the coronavirus, especially at the time when the major central banks were expected to announce monetary policy tightening. The same weighed down the yields and equities while also taking the US Dollar Index (DXY) to the south, making the Japanese yen (JPY) the winner among the G10 currencies.

However, recent comments from Atlanta Federal Reserve President Raphael Bostic reject market talks that the virus strain will ease inflation fears by saying, “Covid is the source of inflation.” On the contrary, European Central Bank (ECB) President Christine Lagarde said, "There is an obvious concern about the economic recovery [of the euro zone] in 2022, but I believe we have learned a lot.” ECB’s Lagarde adds during the interview to Italian news, per Reuters, “We now know our enemy and what measures to take. We are all better equipped to respond to a risk of a fifth wave or the Omicron variant".

Given the mixed chatters over ‘Omnicron’, market players are likely to stay on the current path of consolidating Friday’s losses ahead of the key speeches from US President Joe Biden and Federal Reserve (Fed) Chairman Jerome Powell.

• NZD/USD is higher in the open this week as risk-off currencies come up for air. 
• A lot of good news was already priced into the Kiwi, leaving the bird vulnerable.

NZD/USD is higher at the start of the week, adding some 0.16% at the time of writing as currency markets calm Asia after the initial shock of the discovery of the Omicron coronavirus variant. NZD/USD trades around 0.6820 after rising to a high of 0.6834  on the day from a low of 0.6807. 

However, there could be f more volatility with little still known about the new strain ahead, although there are some good news wises related to the variant shining through the cracks on Monday. A tweet is doing the rounds through financial social media that states that Israel's Prof. Dror Mezorach, head of the coronavirus department at Hadassah University Hospital Ein Karem, said the preliminary reports on the clinical condition of people infected with the new variant are encouraging. 

''If it continues this way, this might be a relatively mild illness compared to the delta variant, and paradoxically, if it takes over, it will lead to lower infection rates,'' and it will be easier to deal with globally. 

However, what has roiled markets is the mutations in the spike protein that is suggesting it could be resistant to current vaccines. Additionally, Omicron has already been detected in places including Australia, Britain, Canada, Germany and Hong Kong. BioNTech said Friday it may know within two weeks if the vaccine it developed with Pfizer needs to be reworked.

Meanwhile, ''NZD/USD has actually held up fairly well (compared to equities, oil and bonds), but NZD/JPY and NZD/EUR have been crushed. Very little is yet known about Omicron, but if it proves to be problematic, and its impact more global than local, that does speak to all economies taking a hit, and not just New Zealand,''

''In turn, that means less for relative prices like exchange rates,'' the analysts stated. ''But a lot of good news was already priced into the Kiwi (particularly on the interest rate/carry side of the equation) and that could make the NZD more vulnerable, particularly against the low or negative policy rate countries like Japan and Europe.''

• DXY struggles for clear direction after the heaviest daily fall in a year.
• Bullish MACD signals, 10-DMA keep buyers hopeful, previous resistance from July adds to the downside filters.

US Dollar Index (DXY) stays firmer around 96.25 during Monday’s Asian session, consolidating the biggest daily loss of 2021.

In addition to the market’s consolidation, 10-DMA and bullish MACD signals also add to the DXY’s bullish bias, which in turn hints at the fresh run-up towards targeting the 96.65 horizontal hurdle.

It should be noted, however, that the latest high around 96.95 and the 97.00 will probe the US Dollar Index upside past 96.65. Following that, June 2020 peak surrounding 97.80 should lure the optimists.

Meanwhile, 10-DMA and the resistance-turned-support line from July 20, respectively around 96.20 and 95.60, will challenge the quote’s short-term declines.

Also acting as the key support level is September’s peak near 94.50, a break of which will roil the bullish trend, at least for a short term.

DXY: Daily chart

Trend: Bullish

In recent trade today, the People’s Bank of China (PBOC) set the yuan (CNY) at 6.3872 vs the estimated 6.3805 and the previous 6.3936.

About the fix

China maintains strict control of the yuan’s rate on the mainland.

The onshore yuan (CNY) differs from the offshore one (CNH) in trading restrictions, this last one is not as tightly controlled.

Each morning, the People’s Bank of China (PBOC) sets a so-called daily midpoint fix, based on the yuan’s previous day closing level and quotations taken from the inter-bank dealer.

• USD/CAD rebounds from intraday low after the biggest D1 jump since August.
• Canada reports two cases of the new covid variant in Ottawa.
• WTI crude oil consolidates Friday’s 13% slump as health officials from the US, Israel sound optimistic.
• BOC’s Macklem, Fed’s Powell eyed for fresh impulse.

USD/CAD bounces off the daily bottom to 1.2750, down 0.30% intraday, while nursing the previous day’s heavy run-up during Monday’s Asian session.

Recovery in the prices of Canada’s main export item, WTI crude oil, seems to have underpinned the latest pullback moves of the Loonie pair even as Canada registers two cases of the recently discovered South African covid variant in Ontario. Additionally favoring the USD/CAD sellers could be the recent positives from the US and Israel concerning the ability to fight back the coronavirus strain.

That said, WTI rises 4.50% to $71.25 after marking a 13% slump the previous day. The black gold’s recovery moves should have taken clues from the OPEC’s delay of the Joint Technical Committee and the Joint Ministerial Monitoring Committee (JTC and JMMC) meetings to Wednesday and Thursday.

Read: WTI Price Analysis: Bears remain hopeful around $70.00

Having identified zero cases of the fresh COVID-19 infections in the US, the National Institutes of Health (NIH) officials renewed hopes that the virus vaccines, as well as the booster doses, can help overcome the latest challenge to the global economy. On the same lines were comments from Israeli Professor Dror Mevorach who terms ‘Omnicron’ as less severe than the ‘Delta’ version of the coronavirus.

Alternatively, comments from Atlanta Federal Reserve President Raphael Bostic, rejecting market talks that the virus strain will ease inflation fears by saying, “Covid is the source of inflation,” keep USD/CAD buyers hopeful.

Amid these plays, US 10-year Treasury yields rise five basis points (bps) to 1.53% following the heaviest daily fall since the early days of the pandemic in 2020. Also portraying the improvement in the market sentiment are the mildly bid US stock futures.

Looking forward, second-tier data from the US and Canada may offer intermediate clues to the USD/CAD traders but major attention will be given to the speeches from the Bank of Canada (BOC) Governor Tiff Mecklem and Fed Chairman Jerome Powell. While BOC’s Mecklem has a little room to reject bears, considering two cases of ‘Omnicron’ at home, Fed’s Powell may surprise markets and renew US dollar strength.

Technical analysis

A clear upside break of the three-month-old resistance line, around 1.2780 by the press time, becomes necessary for the USD/CAD bulls to keep controls. Otherwise, pullback moves towards Thursday’s swing low near 1.2640 can’t be ruled out.

There is some potentially good news crossing the wires out of Israel that suggest the new variant of the coronavirus, named Omicron, that has otherwise distressed risk appetite of late.

Prof. Dror Mezorach, head of the coronavirus department at Hadassah University Hospital Ein Karem, said the preliminary reports on the clinical condition of people infected with the new variant are encouraging.

'' If it continues this way, this might be a relatively mild illness compared to the delta variant, and paradoxically, if it takes over, it will lead to lower infection rates,'' and it will be easier to deal with globally. 

Market implications

No news is good news at the start of the week, but this could see corrections continue into the European open as traders take profits on long volatility and risk-FX. AUD/JPY, the forex market's risk barometer, for instance, is already embarking on a test of the 38.2% Fibonacci level:

• AUD/JPY Price Analysis: Bulls testing a firm hourly resistance

• USD/JPY consolidates the heaviest daily loss since March 2020, bounces off 13-day low.
• WHO termed Omnicron as a “variant of concern”, Japan tightens border controls.
• US Treasury yields recover as Fed’s Bostic rejects dovish concerns.
• Japan Retail Sales eased in September, Fed’s Powell, US President Biden eyed for fresh impulse.

USD/JPY licks its wounds around 113.75, up 0.55% intraday, following the heaviest daily fall in 20 months. That said, the yen pair tracks US Treasury yields and stock futures as global markets rethink the virus variant and its ability to roil the global economy after Friday’s harsh reaction.

The benchmark US 10-year Treasury yields add five basis points (bps) to 1.53% whereas the S&P 500 Futures rise 0.80% at the latest. The corrective pullback seems to track comments from the US health officials and those from Israel that keep the traders hopeful of overcoming the coronavirus strain after the fears of ‘Omnicron’ roiled market sentiment the previous day.

Having identified zero cases of the fresh COVID-19 infections in the US, the National Institutes of Health (NIH) officials renewed hopes that the virus vaccines, as well as the booster doses, can help overcome the latest challenge to the global economy. On the same lines were comments from Israeli Professor Dror Mevorach who terms ‘Omnicron’ as less severe than the ‘Delta’ version of the coronavirus.

Also favoring the US Treasury yields and the USD/JPY buyers were the weekend comments from Atlanta Federal Reserve President Raphael Bostic, rejecting market talks that the virus strain will ease inflation fears by saying, “Covid is the source of inflation.”

At home, Japan’s Prime Minister Fumio Kishida announced blocking the border for foreigners arriving from South Africa and eight other nations. It should be noted that Japan’s Retail Trade eased to 0.9%, versus 1.1% market consensus and -0.5% prior, in September.

Looking forward, the virus developments in the West will be particularly more important for the USD/JPY traders, which in turn highlights today’s speech from US President Joe Biden to update on the US reaction to the COVID-19 variant. Additionally, comments from Fed Chairman Jerome Powell will be observed closely for fresh impulse too.

Technical analysis

A daily closing beyond the support-turned-resistance from early October, around 113.75 by the press time, becomes necessary for the USD/JPY buyers to retake controls. On the contrary, bears remain on the sidelines until the quote stays above 50-DMA level around 113.15.

• AUD/JPY are testing a critical level of resistance in the highs on the hourly chart.
• Despite covid risks, AUD is firm in the opening session at daily support vs the greenback.

AUD/JPY is holding up at the start of the week following turbulent time over the remaining sessions of last week pertaining to the spike in risk-off as a consequence of the new coronavirus variant that is potentially resistant to current vaccines.

The Aussie took a battering last week on the back of both a hawkish set of Fed minutes and the worries of the implications of coronavirus within thin market conditions around the US Thanksgiving holidays. AUD/USD fell to a long-term support zone near 0.7110 and the yen benefitted from the risk-off flows sending AUD/JPY to the lowest levels since October. However, we are seeing a correction in the moves across the forex space and the cross is higher by some 0.67% so far.

AUD/JPY daily chart

AUD/JPY 4-hour chart

From a 4-hour perspective, the price is headed into an area of resistance where the typical Fibonacci retracements can be found between 81.50 and near to 82 the figure. Beyond there, the price could be hard-pressed and bears will be lurking to take advantage of a discount considering the risk-off themes. 

• Gold picks up bids to refresh intraday top, struggled on Friday.
• Virus variant challenges market sentiment but US dollar weakness sounds fishy ahead of Fed’s Powell.
• Treasury yields dropped and drowned the DXY but US Health Officials are confident and save the greenback.
• Gold Weekly Forecast: XAU/USD looks to extend rebound amid renewed coronavirus fears

Gold (XAU/USD) reverses late Friday’s pullback from $1,815 during Monday’s Asian session. In doing so, the metal keeps the previous day’s bounce off a two-month-old support line amid market fears emanating from the coronavirus strain, dubbed as ‘Omnicron’.

Grave symptoms like heavy mutations and the ability to resist vaccines enable Omicron to challenge the market’s previous optimism and calls for tighter monetary policies. The same weighed down the US Treasury yields and the US Dollar Index (DXY) the previous day but gold prices posted a volatile day with no gains amid mixed beliefs over the US dollar and the Fed’s next step.

The US National Institutes of Health (NIH) officials convey no cases of the stated virus variant in the world’s largest economy and remain hopeful that the virus vaccines, as well as the booster doses, can help overcome the fresh challenge. However, Atlanta Federal Reserve President Raphael Bostic rejected market talks that the virus strain will ease inflation fears by saying, “Covid is the source of inflation.”

Elsewhere, Canada and Australia are the latest ones to join the UK, Europe and South Africa to find cases of the COVID-19 variant whereas many counties have rejected flights from Africa and surrounding countries.

Read: Covid Special Report: How will worst coronavirus variant seen to date affect markets this week?

Even so, S&P 500 Futures print mild gains whereas the US 10-year Treasury yields jump 4.5 basis points (bps) to 1.53% at the latest.

Moving on, gold traders should keep their eyes on Fed Chairman Jerome Powell’s speech for fresh impulse, as well as comments from US President Joe Biden. Should Fed’s Powell cite grave concerns due to the recent virus variant breakout, the bullion prices are likely to rise more.

Technical analysis

Gold struggles between a two-month-old support line and a convergence of the 100-day and 200-day EMAs. Hence, a clear break of the $1,785-1,800 area becomes necessary for the traders to get a fair view of the near-term trend.

However, the bearish MACD signals and a likely pick-up in the US dollar’s safe-haven demand challenge the gold buyers.

Other than the $1,800 threshold, the latest swing high near $1,815-16 may also challenge the metal’s upside momentum before challenging the $1,834 barrier comprising highs marked in July and September.

It’s worth noting that the horizontal line of $1,850 adds to the upside filters before directing the quote to the monthly high of $1,877.

Alternatively, a downside break of the $1,785 will quickly fetch gold prices to an ascending support line from August, near $1,760.

Should the gold bears keep the reins past $1,760, the bullion becomes vulnerable to test September’s low of $1,721, a break of which will direct the bears to aim for the yearly low of $1,687.

Gold: Daily chart

Trend: Sideways