CFD Markets News and Forecasts — 30-11-2021

• The NZD/JPY begins the Asian session in the right foot, up 0.17%.
• Wall Street’s risk-off market sentiment gained follow-through ahead of the Tokyo open.
• From a technical perspective, the break below 78.64 would exert downward pressure on the pair, as NZD bears eye 77.00 and beyond.

As the Asian Pacific session begins, the NZD/JPY moderately advances during the day, trading at 77.32 during the day at the time of writing. Factors like omicron strain vaccine effectivity comments by a pharmaceutical CEO and Fed’s Chair Jerome Powell hawkish comments dampened the market sentiment, thus favoring safe-haven currencies like the Japanese yen,

Furthermore, on Tuesday, at a hearing at the US Senate Committee on Banking and Housing, US central bank Chairman Jerome Powell switched from a neutral-dovish monetary policy stance towards a hawkish one. He said that the Fed’s target for inflation has been met and commented that inflation can not be longer considered “transitory.”

NZD/JPY Price Forecast: Technical outlook

From a technical perspective, the NZD/JPY daily chart depicts a downward bias, confirmed by the daily moving averages (DMA’s) residing above the spot price with a flattish slope. Further, the cross-currency pair broke below the September 3 high at 78.64 previous resistance-turned-support, a crucial level, as the 100 and the 200-DMA were exposed and broken, once the former gave way to JPY bulls.

In the outcome of extending the downward move, the first support would be the November 30 low at 76.65. A breach of the latter would expose the September 22 low at 76.33, followed by the August 19 low at 74.55.

On the other hand, the first resistance would be the November 30 high at 77.76. A break of that level would exert upward pressure on the pair, exposing the 100 and the 200-DMA’s around the 78.09-78.25 area. Once the abovementioned is broken, the next resistance would be the 50-DMA at 79.52.

Australian GDP overview

Baffled by the pandemic-led local lockdowns and the Reserve Bank of Australia’s (RBA) cautious optimism, not to forget the latest Omicron woes and hawkish Fed, AUD/USD traders gear up for Australia’s third-quarter (Q3) Gross Domestic Product (GDP) figures, up for publishing at 00:30 GMT on Wednesday.

The recent data from Australia have been downbeat and lockdowns are likely to weigh on the Aussie GDP figures. However, the RBA defends bond purchase tapering while staying cautiously optimistic on the economic growth.

Other than being the headline economic data, today’s GDP figures may have little importance as the covid strain woes and comments from Fed’s Powell seem to already weigh on the quote. Additionally, the growth figures are likely to show the lockdown-led economic loss which has little importance of late as the Pacific major has already jumped on the unlock path.

Forecasts suggest the annualized pace of economic growth to come in at +3.0%, below the previous period's +9.6%, while the quarter-on-quarter (QoQ) numbers could mark the disappointment if easing to -2.7% versus 0.7% prior.

Ahead of the outcome, Westpac said:

TD Securities expects,

How could it affect the AUD/USD?

AUD/USD holds on to the previous day’s rebound from a one-year low of around 0.7130 ahead of the key data release on Wednesday.

The consolidation in the market sentiment and mixed concerns over the covid strain could best be cited as the main catalysts for the pair’s latest corrective pullback.  On the latest basis, comments from China’s Vice Premier Liu He, expecting higher GDP growth for 2021, adds to the odds favoring recovery of the Aussie pair as it has dropped much since late October.

That said, today’s Aussie GDP is less likely to help the Reserve Bank of Australia (RBA) policymakers to make any key decision and hence may not help to forecast the AUD/USD prices much. However, a major positive surprise could offer a reason to the counter-trend traders as the quote struggles to drop below the yearly low.

While citing this, FXStreet’s Dhwani Mehta said, “Against the backdrop of the persistent covid worries, the reaction to the Australian GDP report could be limited, as broader market sentiment, yield dynamics and the influence of the greenback will continue to dominate the pair.”

Technically, AUD/USD holds onto corrective pullback from yearly low inside one-month-old bearish trend channel, taking rounds to an ascending trend line established since November 2020.

Although oversold RSI conditions triggered the much-awaited bounce, bearish MACD signals and downward sloping channel keeps sellers hopeful until the quote crosses the 0.7210 hurdle, including the stated channel’s upper line and 78.6% Fibonacci retracement (Fibo.) of November 2020 to February 2021 upside.

Key notes

Australian GDP Preview: September quarter contraction only a ‘setback’?

AUD/USD bears await for downside to resume again from 61.8% golden ratio

About the Aussie GDP release

The Gross Domestic Product released by the Australian Bureau of Statistics is a measure of the total value of all goods and services produced by Australia. The GDP is considered a broad measure of economic activity and health. A rising trend has a positive effect on the AUD, while a falling trend is seen as negative (or bearish) for the AUD.

• USD/CAD retreats from 10-week top, struggles to extend rebound from late October.
• Bullish MACD signals, two-week-old ascending trend line favor buyers.
• 61.8% Fibonacci retracement, tops marked in September, August also challenge buyers.

USD/CAD bulls take a breather around the highest levels since late September, easing to 1.2780 during the early Asian session on Wednesday.

In doing so, the Loonie pair steps back from a downward sloping trend line stretched from October 2020 amid overbought RSI signals. Adding to the hopes of a pullback are the multiple strong resistances that challenge the quote’s run-up beyond the stated resistance line around 1.2795.

That said, the 1.2800 threshold and 61.8% Fibonacci retracement of September 2020 to June 2021 fall, at 1.2880, offer short-term challenges to the USD/CAD pair’s upside moves.

Even if the quote rises past 1.2880, tops marked during September and August, respectively around 1.2900 and 1.2950, also offer a bumpy road to the north.

Alternatively, pullback moves remain less worrisome until staying beyond a two-week-old support line, close to 1.2690 at the latest. Before that, 50.0% Fibo. level of 1.2710 may offer nearby support.

In a case where the USD/CAD prices drop below 1.2710, April’s high around 1.2655 and the early November’s top near 1.2605 will be in focus.

USD/CAD: Daily chart

Trend: Pullback expected

• NZD/USD fails to extend bounce off one-year low.
• Market sentiment sours amid mixed concerns over South African covid variant, fears of Fed tapering.
• Fed Chair Powell confirms inflation not ‘transitory’, pushed for faster taper in testimony.
• Australia Q3 GDP, China Caixin Manufacturing PMI eyed for fresh impulse ahead of busy US calendar.

NZD/USD retreats towards the 0.6800 threshold, following a corrective pullback after refreshing the yearly bottom with 0.6772. That said, the Kiwi pair remains pressured around 0.6818 during the early hours of Wednesday morning in Asia.

With the varied opinion of the current vaccines’ ability to tame the South African strain for the coronavirus, dubbed as Omicron, markets remain jittery and rush to safe-haven assets like bonds and the US dollar. Adding to the bearish bias for the Kiwi pair were the hawkish comments from Federal Reserve (Fed) Chairman Jerome Powell, in his testimony on the CARES act before the Senate Banking Committee.

After a mildly positive start to Tuesday’s trading in Asia, risk appetite soured on comments from Moderna’s Chief Stéphane Bancel who said, per the Financial Times (FT), “that existing vaccines will be much less effective at tackling Omicron than earlier strains of Covid-19 and warned it would take months before pharmaceutical companies can manufacture new variant-specific jabs at scale.” It should be noted, however, that representatives of Pfizer and Oxford tried placating market fears citing no such evidence supporting the fact that the current jab will not be able to contain the virus strain.

It should be observed that nine-month low prints of the US CB Consumer Confidence and softer housing data helped bears to take a breather before Fed’s Powell pulled the US Dollar Index (DXY) back from the weekly low while saying, “It is time to retire the term ‘transitory’ for inflation." Also weighing on the mood and the NZD/USD were his comments suggesting the risk of more persistent inflation and signals for discussing faster taper in the December meeting.

Elsewhere, China’s official NBS Manufacturing PMI jumped past the 50.00 level for the first time in three months while New Zealand Building Permits for October recently dropped below -1.9% prior to -2.0% in October.

Amid these plays, Wall Street benchmarks posted losses and the US 10-year Treasury yields refreshed a two-month low before closing around 1.45%. Further, the DXY printed a four-day downtrend from the monthly high ahead of consolidating losses around 95.90.

Looking forward, the risk aversion wave may keep the NZD/USD prices pressured and hence highlight the headlines concerning the Fed and Omicron, which in turn emphasize on the second day of Powell’s testimony and US ISM PMI’s. On an immediate basis, Australia’s Q3 GDP and China’s Caixin PMI will be important to follow.

Technical analysis

Despite refreshing the yearly low, NZD/USD prices failed to offer a daily closing below the 0.6800-6790 region comprising the 61.8% Fibonacci retracement (Fibo.) level of June 2020 to February 2021 upside and multiple levels marked during September and November 2020. Failure to conquer the key support joins oversold RSI conditions to portray a corrective pullback targeting September’s low around 0.6860. However, any further advances will aim for July’s low of 0.6881 and the previous support line from June 2020 near the 0.6900 round figure.

Early Wednesday morning in Asia, China’s Vice Premier Liu He crossed wires, via Reuters, saying that the dragon nation’s 2021 GDP growth will exceed the goal. 

The No. 2 also said that China must maintain continuity and stability in its macroeconomic policy.

It’s worth noting that Goldman Sachs cut China 2021 GDP forecasts to 7.8% from 8.0% while citing Evergrande and power cut problems in September.

Following that, China's annualized GDP figures for the third quarter of 2021 arrived at 4.9% vs. 5.2% expected and 7.9% previous, with the QoQ reading coming in at 0.2% vs. 0.5% expected and 1.3% last.

FX reaction

While the news should have favored AUD/USD buyers to defend the bounce from yearly low around 0.7130, cautious sentiment ahead of Australia’s Q3 GDP and risk-off mood in the market probe the Aussie pair by the press time.

Read: AUD/USD bears await for downside to resume again from 61.8% golden ratio

• On Tuesday, the EUR/JPY finished the day in the green amid risk-off market sentiment.
• Omicron COVID-19 concerns and Fed’s Chair Powell comments dampened the market sentiment, favoring the greenback and safe-haven currencies.
• EUR/JPY: Has an upward bias, above 128.17.

On Tuesday, the EUR/JPY is modestly advancing as the New York session wane, up some %, trading at 128.29 at the time of writing. Comments from an influential pharmaceutical CEO related to vaccine effectiveness against new coronavirus strains, and hawkish remarks of Federal Reserve Chair Jerome Powell, dented the market sentiment, favoring the greenback, the Swiss franc, and the Japanese yen.

However, in the case of the EUR/JPY, the shared currency has the upper hand against the Japanese yen, though in the overnight session, omicron woes caused a sharp drop in the pair, favoring JPY bulls, falling from 128.59 down to 127.89 amid the vaccine comments.

Additionally, on Tuesday, at a hearing at the US Senate Committee on Banking and Housing, Jerome Powell changed its monetary policy stance from neutral-dovish towards a hawkish one. He said that the Fed’s target for inflation has been met and commented that inflation can not be longer considered “transitory.” When those remarks crossed the wires, US equity indices plummeted, and the EUR/USD collapsed 130 pips on a free fall. The EUR/JPY followed its footsteps, but moderately witnessing a 70-pip fall, but as the New York session closed, the pair recovered most of the losses, finishing in the green,

EUR/JPY Price Forecast: Technical outlook

The EUR/JPY 1-hour chart deícts the pair is range-bound between the 127.60-128.63 range, 100-pip wide. At press time, the pair tests the confluence of the 50-hour simple moving average (SMA) and Wednesday’s daily central pivot point at 128.17, acting as support. Also, November 30 high and low are higher, indicating that the EUR/JPY could be headed to the upside in the near term, but it would find some hurdles on the way up.

The first resistance would be November 30 high at 128.60. Breach of the latter would expose the 200-hour SMA at 128.86, followed by the R2 daily pivot point at 129.13.

On the other hand, a break below the daily central pivot point would exert downward pressure on the pair. The first support would be the S1 daily pivot at 127.74, followed by November 30 low at 127.64 and then the November 29 low at 127.48 

• AUD/USD bears waiting to engage once again following a significant correction.
• All eyes will turn to the Aussie GDP data today.

AUD/USD is starting out the day down 0.2% from overnight trade following a strong bid in the US dollar. However, the pair has corrected which gives rise to the prospects of an opportunity for bears to move in at a discount. At the time of writing, the pair is trading at 0.7128 between 0.7062 and 0.7170. 

The high beat currencies were tracking the performance of equities that sold off on the day. US bond yields lifted as Powell indicated the Federal Reserve might consider accelerating the taper of bond purchases as inflation persists.  Consequently, US equities had plunged with the S&P500 down 1.9%. The Treasury curve flattened with the yield on the US 10-year Treasury down 6bps to 1.438%. 

The sell-off in risk occurred on Tuesday following warning comments from the chief executive of vaccine developer Moderna who told the Financial Times that existing vaccines may not be as effective against the omicron variant.

"A remark in the Financial Times made by the CEO of a major pharmaceutical company is generating renewed selling pressure: he believes that the current vaccines will be less effective against the new variant of the virus, meaning that new vaccines will need to be developed. This, and then making such modified vaccines available, will take months in his view. This is raising concerns about far-reaching mobility restrictions to combat the "Omicron" variant," Commerzbank analyst Carsten Fritsch explained.

Meanwhile, markets will now look to today's key event for the Aussie in the Gross Domestic Product data. 

• Australian GDP Preview: September quarter contraction only a ‘setback’?

AUD/USD technical analysis

AUD/USD bears will be looking to see if the price from here will start to deteriorate. If so, then there will be prospects of a downside continuation. The 61.8% Fibonacci retracement level is so far holding up as resistance. 

From a 15-min perspective, the 0.7110 area will be important for bears looking to engage in a possible downtrend. A break there will likely be the last major defence for the bear trend to continue:

• AUD/NZD consolidates losses after refreshing one-week low, stays below previous key supports.
• 100-DMA, two-week-old rising trend line restrict recovery moves ahead of descending trend line from March.
• 23.6% Fibonacci retracement lures bears, for now, September’s bottom is a crucial support.

AUD/NZD licks its wounds around 1.0450-45 as Asia-Pacific traders brace for Australia’s Q3 GDP during early Wednesday morning.

That said, the cross-currency pair closed below the 100-DMA for the first time in a week while also breaking an ascending support line from November 18.

Given the steady RSI, coupled with a clear downside break of the previous key supports, the latest decline is likely to extend should the Australia GDP offer no major positive surprise, expected -2.7% versus prior +0.7% QoQ.

Read: Australian GDP Preview: September quarter contraction only a ‘setback’?

With this in mind, AUD/NZD traders aim for the 23.6% Fibonacci retracement (Fibo.) level of the March-November fall, around 1.0405, before attacking the 1.0400 threshold.

In a case where the quote remains bearish past-1.0400, 1.0330 and September’s bottom of 1.0278 will be crucial levels to watch before expecting a fresh low under 1.0240.

Meanwhile, the corrective pullback will aim for the support-turned-resistance levels of 1.0450 and 1.0480, comprising 100-DMA and a fortnight-long trend line.

Should AUD/NZD prices manage to stay firmer above 1.0480, the 38.2% Fibo. level of 1.0510 and a descending resistance line from March, at 1.0526 at the latest, will be critical for the bulls.

To sum up, AUD/NZD has already opened doors for the sellers ahead of the likely downbeat Aussie data.

AUD/NZD: Daily chart

Trend: Further weakness expected

• OIl bears took charge today on inflation fears, covid concerns and a hawkish Fed.
• Eyes turn to OPEC and will stay on the covid variant contagion risks.

West Texas Intermediate, WTI,  crude oil dropped to the cheapest level in more than three months on Tuesday. There are worries over rising Covid-19 infections and concerns that the new variant will be resistant to the current vaccines. The Omicron variant is a fluid situation and only time will tell if this will pass without forcing the reimplantation of new quarantine measures, weighing on the demand side case for higher oil. 

At the time of writing, WTI spot is trading down some 4.6% on the day at $66.78 after sliding from a high of $71.18 to a low of $64.45. The sell-off occurred on Tuesday following warning comments from the chief executive of vaccine developer Moderna who told the Financial Times that existing vaccines may not be as effective against the omicron variant.

"A remark in the Financial Times made by the CEO of a major pharmaceutical company is generating renewed selling pressure: he believes that the current vaccines will be less effective against the new variant of the virus, meaning that new vaccines will need to be developed. This, and then making such modified vaccines available, will take months in his view. This is raising concerns about far-reaching mobility restrictions to combat the "Omicron" variant," Commerzbank analyst Carsten Fritsch explained.

Meanwhile, The Federal Reserve was an additional risk that sent the greenback higher on the day due to the Feds chairman, Jerome Powell's hawkish testimony to the US Senate.  Powell conceded inflation can no longer be considered “transitory” as the risks of persistently higher inflation have grown.

''Despite the market uncertainty caused by the emergence of the Omicron variant of COVID, Powell indicated it may be time to further curb the rate of bond purchases,'' analysts at ANZ bank explained.

''While this form of monetary policy tightening had previously been announced, Powell now says the bond purchase programme may need to end sooner than previously signalled. He stated that the economy is very strong and inflationary pressures are strong therefore it is appropriate to consider wrapping up the taper of asset purchases a few months early, and this will be discussed at the next Fed meeting. This indicates the bond purchase programme may be wrapped up by March 2022 with the final purchases occurring in February.''

In other news, supply is on the rise, with OPEC+ raising quotas by a scheduled 0.4-million barrels per day on Wednesday.  '' It already postponed its technical meetings to allow more time to assess the impact of Omicron. However, it remains unconcerned, with both Saudi Arabia and Russia waiting for more information. The official ministerial meeting is still scheduled for 2 December,'' analysts at ANZ bank explained. ''However the release of 60-million barrels of strategic reserves from the United States and five other nations and concerns over the impact of the omicron variant in a quarter where demand is already seasonally weak may convince the group to forgo adding supply,'' Reuters wrote in a note. 

• GBP/JPY dipped briefly under 150.00 on Tuesday, but has since recovered back to the mid-150.00s.
• The bears will now be targetting a test of the April-October lows in the 148.50-149.50 region.
• The pair continues to suffer amid heightened demand for safe haven assets as markets fret about Omicron-related uncertainties.

GBP/JPY continued to head lower on Tuesday, picking up where it left off with things last Friday after Monday’s flat session. The pair dipped under 151.00 during the Asia Pacific session as heightened demand for safe havens boosted the yen after comments from the CEO of Moderna triggered concerns about vaccine efficacy and triggered risk-off flows. The pair momentarily dipped under the key 150 level in earlier trade, but has since recovered back to around 150.30.

Since slipping under key support in the 152.50 area in the form of a string of recent lows and the 200DMA at the end of last week as Omicron fears first hit the market, GBP/JPY hasn’t looked back. The pair has now backed off over 5.0% from October’s highs above 158.00 and the bears now eye an imminent test of the April-October lows in the 148.50-149.50 area. However, with the pair’s Relative Strength Index fast approaching oversold territory at 32.00 (oversold is classified as under 30.00), this may be a tough area to crack in the coming days.

But markets remain very much driven by Omicron-related headlines. There is still a high degree of uncertainty regarding how well the variant will be able to evade vaccine-induced and natural immunity, as well as regarding its transmissibility and symptoms. The answer to these questions will determine whether the emergence of Omicron turns out to be just a “storm in a teacup” or whether it is a meaningful threat to the global economy and central bank tightening plans. As long as uncertainty remains elevated, GBP/JPY is likely to remain a sell on rallies.

• USD/TRY recently hit record highs above 14.00 in wake of further calls for rate cuts from President Erdogan.
• The Turkish President said interest rates would fall significantly ahead of the 2023 election.

USD/TRY vaulted above prior record highs at 13.50 in recent trade and printed fresh record levels above 14.00 for the first time. The pair has since dipped back under 14.00, but continues to trade in an extremely volatile manner in wake of the latest round of monetary policy commentary from Turkish President Erdogan.

Erdogan comments

Erdogan said in an interview with on State TV that interest rates would fall significantly ahead of the 2023 election as Turkey continues to push back against high interest rates with the “back of its hand”. Erdogan reiterated his stance that it is high interest rates that are the cause of inflation, and that by lowing rates, he can boost investment, employment, growth and production. He added that in 2022 he would protect workers from price hikes in 2022 with a new minimum wage.

Things going from bad to worse for the lira

Over the past three weeks, during which time USD/TRY has surged from under 10.00 to current levels close to 14.00, the lira has lost roughly 25% of its value against the US dollar. That takes losses on the year to close to 45%, making TRY far and away the worst performing of the major EM currencies this year, worse even than the Argentinian peso, which has lost about 17% of its value versus the US dollar. Remember that Argentina is a country where the Consumer Price Inflation is currently running close to 50%.

The eye-watering losses for the lira have come as President Erdogan has tightened his control over the CBRT’s monetary policy decision making by continually firing dissenters that oppose his wishes to lower rates in the face of rising inflationary pressures. As a result, any notion of CBRT independence and credibility has now gone largely down the drain and markets increasingly view monetary policy commentary from Erdogan as akin to commentary being made by the governor of the CBRT.

Thus, when Erdogan talks about further rate cuts ahead of the 2023 election, despite Consumer Price Inflation nearing 20% in October, investors within Turkey are becoming fearful that the President is driving the country towards hyperinflation. Hence the capital flight that is putting the lira under such pressure. Erdogan shows no signs of realising that it is his unorthodox economic policy (Erdoganomics, as some have called it) that is the primary cause of high inflation and continues to blame others (such as speculators for lira weakness and companies for “price hikes”).

• AUD/JPY is forming a head and shoulders pattern on the hourly chart.
• AUD/JPY has reached a 61.8% Fibonacci retracement level as well. 

From an hourly perspective, the forex market's risk barometer has been on the offer mid-week considering the risks related to the coronavirus variant, Omicron, as well as inflation pressures that are upsetting global equities. 

The following illustrates the recent price action and the chart formation taking shape that could be regarded as a bearish prospect for the forthcoming sesisons. 

AUD/JPY H1 chart

AUD/JPY daily chart

The bears are looking to tap into the liquidity to sell into and take profits between 78.50 and 80 the figure for the coming days.

AUD/HPY 15-min chart

From a short term perspective, the W-formation's neckline around 80.40 is compelling should the cross be rejected in the current support territory. 

• XAU/EUR slumps almost 1%, following XAU/USD and XAG/USD footsteps.
• Worries about vaccine effectiveness on new COVID-19 strains, and Fed’s Chair Powell comments, spurred a flight to safe-haven assets, except for precious metals.
• XAU/EUR found strong support at June 1 swing high previous resistance-turned-support at €1,567.

Gold (XAU/EUR) versus the euro slides in the day, trading at €1,568 in the New York session at the time of writing. A risk-off market mood in the financial markets caused a flight to safe-haven assets. In the case of the XAU/EUR spot, the shared currency has the upper hand, advancing 0.83% against the non-yielding metal.

Comments of a pharmaceutical company CEO regarding vaccine effectiveness against new coronavirus strains dented the market sentiment along with hawkish comments made by Federal Reserve Chair Jerome Powell that favors the greenback, to the detriment of precious metals.

That said, XAU/USD is falling 0.55% in the precious metal segment, while silver (XAG/USD) slumps 0.08% during the day.

XAU/EUR Price Forecast: Technical outlook

The XAU/EUR daily chart depicts gold’s upward bias, as long as the daily moving averages (DMA’s) with an upslope reside below the spot price. Furthermore, it is essential to notice that at press time, the June 1 swing high previous resistance-turned-support price level at €1,567, that if it is broken, it will expose the November 3 cycle low at €1,519 by a test of the 200-DMA at €1,515.

On the flip side, if the June 1 support at €1,567 holds, that would help gold bulls push the price towards higher readings, with the €1,600 figure being the first resistance area. A breach of the latter would expose crucial supply zones, like November 18 low previous support-turned-resistance at €1,632, followed by the YTD high at €1,654.

• After hawkish Fed Chair Powell remarks, USD/JPY attempted to recover towards 114.00 on Tuesday, but the momentum faded.
• The pair is now back under its 50DMA at 113.20 as long-duration US yields remain subdued.

USD/JPY was choppy on Tuesday, pushing as high as the 113.60s in the immediate aftermath of hawkish remarks from Fed Chair Jerome Powell in his Congressional testimony from prior lows under 112.60, before pulling back towards 113.00 more recently. That means the pair is on course to post on the day losses of 0.3%, with the session lows under 112.60 actually marking seven-week lows at the time.

USD/JPY’s failure to rally back to Monday’s highs close to 114.00 and the 21-day moving average just above it is a sign that, for now, bullish momentum is weak. That suggests the 50DMA 113.20, which was supported as recently as last Friday and this Monday, may continue to cap the price action, or at least act as a magnet to it. Now that prices have dipped below previous monthly lows and to as low as the 112.50s, a push back lower towards the 112.00 level could be on the cards, so long as recent downside momentum in US government bond yields doesn’t reverse.

Yield update

As is normally the case, USD/JPY price action on Tuesday was to a large extent driven by fluctuations in US bond yields and its impact on US/Japan rate differentials. The US yield curve saw notable bull flattening on Tuesday, with the 2-year yield actually up about 2bps on the day to around 0.52%, the 10s down nearly 9bps to 1.44% after printing its lowest level since September. The 30s, meanwhile, was down over 9bps to under 1.80% and printed its lowest since January of this year.

While short-end yields were given a lasting boost by Fed Chair Powell’s hawkish message, the boost to longer-term yields quickly faded. Traders cited concerns about the Fed turning more hawkish at a time when the economic outlook is unusually unclear given uncertainties to do with the Omicron variant as a reason why longer-duration US bonds were able to retain a decent safe-haven bid.

USD/JPY tends to be more sensitive to rate differentials on longer-term bonds, thus, if the 10 and 30-year yields do make important downside breaks, this would weigh heavily on the pair. The risk of further safe-haven bids into long-term US bonds in wake of more bad news on the Covid-19 Omicron front remains elevated and until there is more certainty, USD/JPY may remain a sell on rallies.

Turkish President Erdogan on Tuesday said that Turkish interest rates will fall significantly before the 2023 election and inflation will fall too, according to Reuters. Erdogan said earlier in the session that Turkey is pushing back the policy of high interest rates with the "back of its hand", before adding that recent volatility in the exchange rate is not based on economic fundamentals. 

Moreover, he also said that there is no going back from the current economic model and that the economy will no longer live in the trap of inflation, high interest rates and the exchange rate. Those attacking the Turkish economy will not succeed, he added. Erdogan also said that he hoped Turkey would post a current account surplus in 2022 and that stability in the exchange rate can only be possible with exports and tourism income.

Market Reaction

It's been a volatile session for the ever beleaguered lira, with the pair up around 5.0% on the day just below 13.50, having briefly hit the half-round figure to match the record high printed last week. In wake of the latest inflammatory remarks from President Erdogan, who seems intent on worsening the CBRT credibility/currency crisis, a break above 13.50 seems likely. 

• Silber bulls are stepping in as the greenback gives back territory to the stubborn euro.
• Eurozone data arrived hot and put the ECB's dovishness into question.
• if the ECB is seen to align with the Fed, euro can rally and the dollar will be pressured, helping commodities recover.

The price of silver was a touch lower on the day despite a strong rally in the US dollar. Equities sold off and bond yields lifted as Fed Chair Jerome Powell indicated the Fed might consider accelerating the taper of bond purchases as inflation persists. At the time of writing, the white metal is down some 0.33% after falling from a high of $23.312 to a low of $22.6935.

The greenback did not manage to stay on top for long as the eurozone data came in hot. This enabled the euro to correct a strong sell-off considering the European Central Bank may not be able to ignore the risks of higher inflation for longer.  Inflation in Europe hit a record in November with the headline inflation up 4.9% YoY and core inflation up 2.6% YoY. At this point, the ECB continue to insist the current high rate of inflation will not persist. On the same day, there was better news on the Unemployment Rate in Germany as well. The Unemployment rate fell in Germany by 0.1% to 5.3% in November as claims decreased by 34k. This data was slightly better than expected but ''Germany’s labour market still has some way to go to fully recover'', analysts at ANZ Bank argued.

Meanwhile, this morning the Fed Reserve Chair Jerome Powell conceded that it is time to talk about a fast rate of tapering. he noted that inflation can no longer be considered “transitory” as the risks of persistently higher inflation have grown.

''Despite the market uncertainty caused by the emergence of the Omicron variant of COVID, Powell indicated it may be time to further curb the rate of bond purchases,'' analysts at ANZ Bank explained.

''While this form of monetary policy tightening had previously been announced, Powell now says the bond purchase programme may need to end sooner than previously signalled. He stated that the economy is very strong and inflationary pressures are strong therefore it is appropriate to consider wrapping up the taper of asset purchases a few months early, and this will be discussed at the next Fed meeting.''

The analysts argued that this indicates the bond purchase programme may be wrapped up by March 2022 with the final purchases occurring in February.''

Consequently, the DXy shot higher to test the 96.65 territories. The euro, however, was above to battle back in a 61.8% Fibonacci retracement and this weighed don the greenback that fell back to test 96 the figure towards the close on Wall Street. 

Meanwhile, analysts at TD Securities explained that the selling flow from China Smart Money funds has continued to weigh on silver, with the group substantially growing their short during the commodity carnage in last Friday's session.

''Interestingly, the recently added Shanghai gold length has remained resilient to the technical failure, but Shanghai silver traders' growing short fits with our view of a more vulnerable fundamental outlook for the white metal, despite the resiliency thus far observed in price action.''

Silver technical analysis

As the dust settles, the bulls will be looking for a correction, potentially as far as a test of the 61.8% golden ratio and into the prior support structure near $23.60. A break of the current support, however, opens risk to a run into the $21.50 regions.

What you need to know on Wednesday, December 1:

Financial markets are all about risk-aversion. The American dollar initially fell but changed course during US trading hours to reach weekly highs against most major rivals.

Concerns rotated around the coronavirus pandemic during the first half of the day, with the focus on the newest COVID-19 variant. News suggested that the current vaccines and antibody drugs' cocktails are likely to be less effective against the Omicron strain, although it is still unclear to which extent.

The University of Oxford noted that there's no evidence existing vaccines won't provide some protection against it, although Moderna's CEO said he believes the vaccine effectiveness would probably drop. Mandatory vaccination and borders' closure are spreading rapidly across the globe. At this time, it's unclear how this new strain will affect the ongoing economic recovery. Meanwhile, it would likely exacerbate supply chain issues, one of the main reasons for skyrocketing inflation.

US Treasury yields were sharply lower, weighing on the American currency.  US Federal Reserve Chair Jerome Powell testified on the CARES act before the Senate Banking Committee and surprised investors with his words. Firstly, he said that it is time to retire the term "transitory" for inflation." Risk of more persistent inflation has risen," Powell said. Additionally, he noted that it is appropriate to talk about speeding up tapering in the upcoming December meeting. Market participants rushed into the greenback, helping yields to bounce from their intraday lows.

The shared currency is among the best performers against the greenback, now trading at around 1.1310. GBP/USD, on the other hand, plummeted to a fresh 2021 low of 1.3194 2hile AUD/USD traded as low as 0.7062. The greenback also posted gains vs the CAD, with the pair now hovering around 1.2800.

The dollar's late recovery left safe-haven currencies pretty much flat vs the dollar on a  daily basis.

Gold plummeted after briefly advancing beyond 1,800, now trading at $1,775 a troy ounce. Crude oil prices also fell, with WTI at $66.00 a barrel.

Wall Street came under strong selling pressure, with all indexes closing in the red.

Top 3 Price Prediction Bitcoin, Ethereum, XRP: Leading cryptos take the back seat

• The NZD modestly falls amid risk-off market sentiment and Fed’s Chair Powell hawkish comments.
• The market sentiment is downbeat, as Moderna’s CEO said that current vaccines would not be effective against the omicron variant.
• NZD/USD found strong resistance at the confluence of the 50-hour SMA and the daily central pivot point.

The NZD/USD is barely down during the day, fluctuating between gaining and losing amid risk-on and then the risk-off market sentiment, trading at 0.6816 at the time of writing. In the overnight session, the comments of Moderna’s CEO said that current vaccines would not be effective against the last week’s discovered omicron strain, dampening the market sentiment, as the NZD, a risk-sensitive currency, dropped to 0.6789 but bounced off those lows later.

Fed’s Chair Jerome Powell said that inflation can no longer be considered “transitory”

That said, it seemed that the NZD/USD was poised for further upside, but then Fed’s Chair Jerome Powell crossed the wires, triggering an 80 pip drop in the pair, from 0.6850s, down to 0.6772. 

On Tuesday, at a hearing at the US Senate Committee on Banking and Housing, Jerome Powell said that inflation could no longer be considered “transitory.” He added that the COVID-19 recent strain, the omicron poses “downside risks to employment, economic activity and increasing uncertainty for inflation.”

Fed’s Chair Powell added that higher prices are related to supply-demand issues, reiterating that price increases have spread more broadly. He further noted that the risk of higher inflation has increased.

Powell favors a faster “wrapping up” of the bond purchasing program and commented that he would talk about the need of “speeding up taper” at the 2021’s last meeting.

On Wednesday, the New Zealand economic docket will feature Building Permits s.a. for October on a month-over-month reading. On the US front, the economic docket will unveil the ADP Employment Change for November. Further, the ISM Manufacturing PMI for November and Fed speakers, with the Federal Reserve Chair Powell, testifying before the US Congress.

NZD/USD Price Forecast: Technical outlook

The NZD/USD 1-hour chart depicts the pair has no “strong” bias, but as long as the spot price remains below the 100 and the 200-hour simple moving averages (SMA’s), it favors USD bulls. At press time, the pair has found strong resistance at the confluence of the 50-hour SMA and the daily central pivot point at 0.6817.

Failure at 0.6817 could send the NZD/USD pair tumbling lower, potentially towards new YTD lows. The first support on the way down would be the S1 daily pivot at 0.6795, followed by the November 29 low at 0.6787 and then the S2 daily pivot at 0.6765.

On the flip side, if NZD bulls reclaim the 50-hour SMA, that would expose the 100-hour SMA as the first resistance at 0.6832. A breach of the latter would expose the R1 daily pivot at 0.6845, followed by the R2 daily pivot at 0.6867.

Turkish President Recep Erdogan, speaking on State TV in Turkey, said that he will boost investment, employment, growth and production by lowering interest rates on Tuesday. Interest rates are the cause and inflation is the result, he continued, adding that he thinks economic growth in 2021 will be about 10%. Hopefully we will soon see inflation falling too, he added. 

Market Reaction

USD/TRY has not seen a reaction to Erdogan's remarks in recent trade, but did on Tuesday rally back to record highs in the 13.50 area, despite most other EM currencies appreciating versus the US dollar on the day. 

• The S&P 500 dropped 1.3% on Monday and printed fresh monthly lows just in time for month-end.
• The downside was triggered by concerns over vaccine efficacy versus Omicron and hawkish Fed vibes.

US equity markets more than reversed Monday’s gains on what looks set to be a classic turnaround Tuesday, with the S&P 500 dropping back below 4600 to print fresh monthly lows in the 4570s. That marks a 1.8% drop for the index on the final trading day of the month and sets the S&P 500 on course to post a monthly loss of 0.6%. Technicians will be eyeing a test of resistance in the 4550 area.

In terms of the other major US indices; the tech-heavy Nasdaq 100 index is currently nursing losses of about 1.7% while the more value/cyclical stock exposed Dow is down 1.8%. In other words, the losses across US equity markets are pretty evenly/broadly spread. The CBOE S&P 500 Volatility Index, often referred to as the VIX or Wall Street’s fear guage, was up nearly 5 points to 27.70, only a few points below last Friday’s highs at 29.00.

Driving the downside

Driving the selling pressure on Tuesday was a duo of factors. Firstly, global equities (including US index futures) fell sharply towards the end of the Asia Pacific session on remarks from the CEO of Moderna that he expected the new Covid-19 variant to significantly erode vaccine efficacy. Despite numerous other vaccine makers, developers, scientists and public health authorities offering a more reassuring take that they still expect the vaccine to be fairly effective, the damage to sentiment was already done. The reaction to the comments made by the Moderna CEO demonstrates just how twitchy markets are right now to news regarding the new variant. Further information about the variant’s transmissibility, vaccine-escape capabilities and severity of symptoms caused will be important drivers of risk appetite in the weeks ahead.

The second factor to weigh on risk appetite on Wednesday was remarks by Fed Chair Jerome Powell, who testified before Congressional Committee on Banking, Housing, and Urban Affairs. Powell’s introductory statement at the hearing, which was released on Monday but largely ignored at the time, came across as bullish on the state of the economy (on growth, inflation and the labour market). This hawkishness, which (as mentioned) was initially ignored, was then built upon by Powell in the Q&A section of the hearing, with Powell saying that the word “transitory” should be retired as a description for inflationary pressures.

Meanwhile, while Powell did reemphasise that he expects inflationary pressures to moderate in mid-2022, he placed heavy emphasis on the fact that upside risks to inflation had grown and remarked that inflation was now a risk to the labour market. When pressed by Senators on the ongoing need for more monetary stimulus in light of underlying US economic strength and high inflation, Powell then revealed that he thought it might be appropriate to end QE purchases sooner. Acceleration of the Fed QE taper would be a topic of discussion at the 15 December FOMC meeting, he said.

Powell’s hawkish remarks triggered a sharp rally in short-end and real US bond yields, as well as upside in the US dollar. The upside in longer-term US yields was much more modest. Indeed, on the day nominal 30-year yields are down nearly 9bps, while the 30-year TIPS yield was down by a similar margin. As a result, US tech/duration-sensitive growth stocks have been “spared” from the kind of underperformance that would typically be seen if yields had risen across the board.

Fed Vice Chair Richard Clarida said on Tuesday that the labour market right now is a lot tighter than it was following the previous two recessions and that wages gains are healthy but not out of line with productivity, according to Reuters. Adverse supply shocks can be a challenge for monetary policy, he added, because they push up both inflation and unemployment. 

Clarida will be replaced by Fed Governing Board member Lael Brainard as Vice Chairman of the Fed in Q1 2022. 

Market Reaction

Clarida's remarks have not provoked any meaningful market reaction, given they don't add anything new to the policy debate. 

• AUD/USD reached a new 2021 low at 0.7062 amid Fed’s Chair Powell hawkish comments.
• US short-term bond yields advance, while the 10-year benchmark note falls to 1.449%.
• The US Dollar Index reclaims the 96.00 but keeps in the red, down 0.24%.

After trimming some of last Friday’s losses on Monday, the AUD/USD falls sharply during the day, down 0.34%, trading at 0.7107 at the time of writing. The market sentiment is in risk-off mode, as portrayed by US equities falling sharply on comments of Federal Reserve Chair Jerome Powell, weighed on risk appetite, with the US Dollar Index recovering some earlier losses in the day, down some 0.24%, but reclaimed the 96.00 figure. Meanwhile, the US short-term yields advance, while the US 10-year Treasury yield edges lower, down to 1.449%, a drop of eight basis points.

Investors priced in 50 basis points hikes, after Fed's Chair Powell comments

Money markets futures show almost 59 basis points of rate hikes priced in by the end of the following year. On Friday of last week, investors scaled back some of those bets on the discovery of the new COVID-19 variant as market participants assessed what’s its impact on the economy.

Summarizing some of Fed Chair Powell’s remarks, he said that inflation could no longer be considered “transitory.” He noted that the COVID-19 recent strain the omicron pose “downside risks to employment, economic activity and increasing uncertainty for inflation.”

Powell favors a faster “wrapping up” of the QE’s program and reiterated that he would talk about the need of “speeding up taper” at the December meeting.

That said, in the overnight session, the market sentiment dampened on the back of Moderna’s CEO warning that existing vaccines would be less effective against the South African discovered variant than earlier strains, spurring a drop in equity futures around 5:00 AM London time.

Therefore, AUD/USD trader’s focus would turn to Wednesday economic docket, though throughout the week, the US economic docket could favor USD bulls after Fed’s Chief Powell remarks. On Wednesday, the US docket will unveil the ADP Employment Change for November, a prelude of the Nonfarm Payrolls, to be released on Friday. Further, the ISM Manufacturing PMI for November and Fed speakers, with the Federal Reserve Chair Powell, testifying before the US Congress.

The Australian economic docket will feature the AiG Performance of Manufacturing Index for October and the Gross Domestic Product for the Q3 quarterly and yearly. 

• EUR/USD bears looking to step in again as the price corrects 50% of the drop. 
• The single currency refuses to stay down as traders take profits resulting in a sharp correction. 

EUR/USD has been a rollercoaster of a ride since last week's market rout and the resurfacing of coronavirus contagion fears in the emergence of the new Omricon variant. This has seen the single currency rally vs the greenback. The expectations that the Federal Reserve would no longer be willing to speed up the pace of tapering were negated today. Despite the fears of contagion of the variant that, so far, has not had enough time to show whether current vaccines are effective or not, the Fed could step on the gas after all.

Today, the Fed's chairman, Jerome Powell, said it is time to talk about speeding up the pace of tapering. This has led to a major sell-off in the euro for which it is attempting to recover a significant portion at the time of writing.

The following is an analysis of the hourly chart that illustrates the volatility of the euro vs the US dollar and arrives at a consolidative conclusion for the time being. 

EUR/USD H1 chart

As can be seen, the price has corrected over 50% of the drop in the New York session and would be expected to start to decelerate at this juncture. That being said, there is room to go for a test of the M-formation's neckline lows near 1.1340. However, the bias is to the downside below there for the forthcoming sessions mid-week, although the sharpness of the correction likely means that bears are not entirely committed which likely leaves the price sideways between the recent lows near 1.1230 and highs near 1.1385. 

• GBP/USD plummets on risks of contagion and a hawkish Federal Reserve. 
• Vaccines may not be effective against the new covid Omicron variant.

Sterling fell to a one-year low versus the US dollar Tuesday due to the sentiment of divergence between the Federal Reserve and the Bank of England following hawkish comments from Fed's chairman Jerome Powell. At the time of writing, GBP/USD is trading at 1.3250 and down around 0.5% on the day so far, falling from a high of 1.3370 and crash landing at 1.3194.

Fed's Powell, who was making a testimony before the Senate, said that it is time to retire the term "transitory" for inflation. Additionally, he considers it appropriate to talk about speeding up tapering in the upcoming December meeting. On that, the US dollar took off and the euro plunged, dragging the pound along for the ride as investors weigh the risks of the contagion of the Omicron coronavirus variant and the concerns that there is no effective vaccine solution, yet. 

Risk assets were under pressure after Moderna Chief Executive Stéphane Bancel told the Financial Times that existing COVID-19 vaccines are unlikely to be as effective against the newly detected variant as they have been previously. On the other hand, there are mixed messages with the CEO of BioNTech saying the current generation of Covid-19 vaccines will probably still protect against severe disease in people infected by the omicron variant. However, drugmaker Regeneron Pharmaceuticals Inc said on Tuesday its COVID-19 antibody treatment could be less effective against Omicron.

Nevertheless, the uncertainty has rocked the socks off risk assets. The markets have also got what they were waiting for in Powell's testimony today, firming the belief that the Fed may still have to hike sooner than first expected despite the threat of the virus. However, it is yet to be seen as to what the Bank of England's bias will now be. 

BoE in focus

Inflation has moved sharply higher in the UK, but the BoE has remained firmly with the opinion that inflation will be transitory whereby the three components, food, energy, and autos price has been affected by the supply chain blockages and re-opening of the economy.

Wage data is also mixed, analysts at TD Securities argued. ''Headline wages are distorted by furlough and compositional effects, but underlying pay growth is still rising. Flash October PAYE pay data shows the first drop in median pay since the early days of COVID, as the furlough scheme ended.''

''The BoE's Dec meeting remains finely balanced. A single hike before March is all but certain, but Omicron may hold the MPC off until February.''

• The USD/CAD reached a new weekly high at 1.2836.
• Fed’s Chair Powell: “Time to retire the word Transitory to inflation.”
• Jerome Powell favors a faster bond taper and would talk about speeding up the QE’s reduction on the next meeting.

The USD/CAD pair is rallying during the New York session, trading at 1.2820 at the time of writing. In the overnight session, the CAD had the upper hand against the greenback, amid a recovery in crude oil prices, after an overextended fall on Friday’s of last week that witnessed a drop of 12% in the day. Nevertheless, Moderna’s CEO comments that a drop in current COVID-19 vaccines efficacy spurred a spike from 1.2740 to 1.2790, ultimately gaining follow-through on Federal Reserve Chair Jerome Powell’s remarks during a hearing at the US Senate Committee on Banking and Housing.

Fed’s Chair Powell said that elevated prices are blamed on supply-demand issues, though reinforced that those increases have spread broadly. Furthermore, he noted that “risks” of higher inflation have increased and said it is time to retire the word “Transitory” when talking about inflation.

Powell added that it is “appropriate to consider wrapping up taper in a few months sooner” and said he would talk about speeding up the retirement of the bond purchasing pandemic stimulus in the next FOMC meeting.

When he was asked about the COVID-19 omicron variant, he said that he “will know within a week or 10 days, can only assess the impact on the economy then.”

The US macroeconomic docket so far featured the S&P/Case-Shiller Home Price Index (MoM) for September, which rose by 19,1%, more than the 19.3% expected. Meanwhile, the Chicago Purchasing Managers Index for November increased to 61.8, lower than the 67 estimated.

USD/CAD Price Forecast: Technical outlook

The USD/CAD 1-hour chart shows the pair has an upward bias, as confirmed by the hourly simple moving averages (SMA’s) with an upslope, residing below the spot price. At press time, the upward move triggered once Fed’s Powell said that it’s time to retire the Transitory word from inflation was capped around the R2 daily pivot point at 1.2822.

In the outcome of extending the rally, the first resistance would be the New York session daily high, reached at 1.2836, followed by the R3 daily pivot at 1.2852, followed by the figure at 1.2900.

On the other hand, the confluence of November 29 around the 1.2800 figure would be the first demand zone. A breach of the latter would expose the R1 daily pivot at 1.2780, followed by the 50-hour SMA at 1.2761.

• Spot gold prices fell sharply from close to $1810 to the low-$1770s amid hawkish comments from Fed Chair Powell.
• Powell said that a faster QE taper might be appropriate and will be discussed at the December FOMC meeting.

Spot gold (XAU/USD) prices have turned sharply lower in recent trade following hawkish remarks from Fed chair Jerome Powell that sent the US dollar and short-end and real US yields lurching higher. The precious metal pulled back abruptly from earlier session highs close to $1810 and now trades in the low-$1770s, a near 2.0% turnaround from earlier session highs. Spot gold is now trading down by mover than 0.5% on the day, though has not yet broken below weekly lows printed on Monday at almost bang on $1770.

Should this level break, that would open the door to a swift drop to the next significant area of resistance close to $1760, though such a move would likely require further USD and US bond yield upside. This is far from guaranteed as markets continue to fret about the Omicron variant; the market reaction to Omicron fears so far has been to send yields and the dollar lower. Therefore, fresh Omicron-related risk-off, if it kneecaps any further hawkish Fed moves like the one seen on Tuesday, may offer some much-needed support to gold.

For reference, Powell’s remarks sent the US 2-year yield nearly 10bps higher from prior session lows under 0.45% to trade close to 0.55% for a gain of about 5bps on the day. Meanwhile, the 10-year only recovered around 4bps off prior session lows to still trade down about 5bps on the day around 1.45% versus a 1bps gain in the 10-year TIPS yield, implying a roughly 6bps decline in 10-year breakeven inflation expectations (to now under 2.50%).

Shorter-duration real yields saw a bigger bounce, with the 5-year TIPS yield now up about 8bps on the day to above -1.70%, while 5-year breakeven inflation expectations dropped about 7bps to close to 2.90%. Recall that this was above 3.30% as recently as 16 November. The moves higher in short-end and real yields helped propel the dollar higher, with the DXY now flat on the day in the 96.30s, having been as low as the 95.50s prior to Powell’s comments.

Hawkish Powell

To quickly recap the main points from Powell’s remarks; in the Q&A section of the testimony, he said that it may be appropriate to accelerate the pace of the bank’s QE taper and the FOMC will discuss this at its 15 December meeting. Moreover, he said it is time to drop the characterisation of inflationary pressures as transitory.

This added to the somewhat hawkish tone to his economic commentary in his statement to Congress, which had been pre-released to the public on Monday. In the pre-released remarks, Powell highlighted the strength of the economy, noted higher inflation (and did not use the phrasing “transitory”) and the tight labour market. Moreover, he noted how, if anything, the Omicron variant may hold back labour supply, which could exaccerbate inflationary pressures.

• EUR/USD collapsed from 1.1370s down to 1.1240s on Jerome Powell’s hawkish remarks against the US Senate Committee on Banking and Housing.
• Fed’s Powell: “I will talk about speeding up taper at the coming Fed meeting.”

The EUR/USD plummeted during the New York session, on Federal Reserve Chairman Jerome Powell, remarks against the Senate Committee on Banking and Housing.

Market reaction on Fed’s Chair Jerome Powell remarks

At the beginning of the Q&A session, the EUR/USD pair was trading around the 1.1370s but plummeted to 1,1240s on remarks of Jerome Powell.

Jerome Powell said that higher prices are related to supply-demand issues, reiterating that price increases have spread more broadly. He further noted that the risk of higher inflation has increased and commented that it is time to retire the word Transitory when talking about elevated prices.

Regarding a faster QE’s reduction, he said that it is “Appropriate to consider wrapping up taper in a few months sooner.” Further noted that he “will talk about speeding up taper at the coming Fed meeting.” He added that recent data showed elevated inflationary pressures, rapid labor market improvement, and strong spending.

When he was asked about the COVID-19 omicron variant, he said that he “will know within a week or 10 days, can only assess the impact on the economy then.”

EUR/USD Price Forecast: Technical outlook

The 1-hour chart leaves us with a 130 pip sizeable bearish candle on the remarks of retiring the “T” word for inflation. The price plunged through the R3, R2, R1, central daily pivot, S1, and found support around the S2 area at 1.1233, where it bounced towards 1.1270. 

At press time, EUR/USD bulls are having a tough time, trying to break above the 200-hour simple moving average (SMA) at 1.1270. Meanwhile, EUR/USD bears, on the other side, are battling the 100-hour SMA at 1.1261, at the confluence of the S1 daily pivot.

On the way up, the first resistance would be the central daily pivot point at 1.1286, followed by the 50-hour SMA at 1.1300, and November 29 high at 1.1311. On the flip side, the S1 daily pivot at 1.1261 would be the first support, followed by the S1 daily pivot at 1.1233 and then the S3 pivot at 1.1208.

The US dollar surged on Tuesday following comments from Fed Chair Jerome Powell, who indicated it would be appropriate to consider wrapping up the bank's QE taper a few months sooner. Powell, speaking before the Committee on Banking, Housing, and Urban Affairs of the US Senate alongside US Treasury Secretary Janet Yellen, added that the Fed would discuss speeding the QE taper at the 15 December FOMC meeting. 

Powell also said that it was time to retire the word "transitory" as a description of inflation in the US. On inflation, he said that the risk of higher inflation had increased, that price increases have spread more broadly and that the risk of high inflation could undermine the Fed's efforts to get the US back to full employment.

Powell's remarks were interpreted hawkishly and, as a result, the US dollar and US yields (particularly real yields and short-end nominal yields) shot higher. The DXY, which had been trading around 95.50 prior to Powell's remarks, at one point rallied to the north of the 96.50 level, a more than 1.0% turnaround from prior session lows at the time. Profit-taking has since seen this gains moderate somewhat, with the DXY now trading around 96.40, where it trades higher on the day by about 0.2%. 

For reference, US 2-year yields saw a more than 10bps surge from prior session lows under 0.45% to above 0.55% and the 5-year TIPS yield also surged more than 10bps to above -1.70% from previously under -1.80%. 

• Dollar jumps after Powell’s comments, reaching fresh YTD highs.
• NZD/USD tumbles more than 80 pips from the top to the lowest since November 2020.

The NZD/USD peaked at 0.6855, the highest level since Thursday and then collapsed amid a rally of the US dollar across the board. It bottomed so far at 0.6771, the lowest since November of last year. It remains near the lows, amid rising volatility.

It all changed in one minute

The US dollar was under pressure across the board amid lower US yields. Comments from Fed Chair Powell changed it all. The dollar jumped and is testing recent cycle highs versus it main rivals. It erased in a few minutes recent losses.

The NZD/USD tumbled and is testing the 0.6770 zone. A break lower should clear the way to more losses. The change in the direction of the dollar was abrupt and took place after Powell mentioned it is time to remove the word “transitory” from inflation. His comments boosted US yields from monthly lows and sent equity prices lower.

The combination of risk aversion and a rebound in yields favor the dollar. If the situation does not change, the rally of the dollar could continue. On the contrary, a recovery of NZD/USD back above 0.6800 could suggest a potential interim bottom.

Technical levels

Fed Chair Jerome Powell, who is currently testifying before the Committee on Banking, Housing, and Urban Affairs of the US Senate alongside US Treasury Secretary Janet Yellen, said it may be appropriate to consider wrapping up the bank's QE taper a few months sooner. 

Additional Takeways:

"Most recent data show elevated inflation pressures, rapid improvement in the labor market, strong spending."

"At this point, the economy is very strong, inflationary pressures high."

"Appropriate to consider wrapping up taper a few months sooner."

"Will talk about speeding up taper at coming Fed meeting."

"Will know more about Omicron within a week or 10 days."

"Only then can assess impact on economy."

"For now Omicron is a risk and is not baked into forecasts."

• Mexican peso among top performers on Tuesday, amid lower yields.
• USD/MXN breaks under 21.60 and tumbles to 21.27, the lowest since last Wednesday.

The USD/MXN broke under 21.60 and tumbled to 21.27 reaching the lowest level in almost a week. Recently it rebounded rising back above 21.40 and trimmed losses following some hawkish remarks from Fed Chair Powell.

MXN up, but losing strength

The Mexican peso went from oversold to overbought levels in a few days. The USD/MXN is falling sharply however it trimmed losses. A weaker US dollar across the board was the key event, and also a stronger MXN.

During the last hour, Powell at the Senate mentioned that it is time to retire “transitory” as a description of inflation, triggering a decline in Treasuries. The rebound in yields boosted the greenback across the board, sending USD/MXN back above 21.40.

Volatility appears to be set to continue during the next hours. Price moves were also exacerbated prior to Powell’s comments on the back of end-of-month flows.

A recovery above 21.60 would weaken the Mexican peso while a consolidation under 21.45 would keep the 21.30 support area exposed.

Technical levels

Fed Chair Jerome Powell is testifying before the Committee on Banking, Housing, and Urban Affairs of the US Senate alongside US Treasury Secretary Janet Yellen.

Key takeaways:

"It is very surprising that labor force participation has moved sideways."

"A big part of the flat labor force participation rate is the pandemic."

"It will take longer to get labor force participation back."

"Risk of high inflation is a risk to getting back to full employment."

"The threat of higher inflation has grown."

"My baseline expectation is that inflation will move back down over course of next year."

"Risk of more persistent inflation has risen."

"You have seen our policy adapt and you will see it continue to adapt."

"We will use our tools to make sure higher inflation doesn't become entrenched."

"Expect high inflation to continue through to the middle of 2022."

Market Reaction

Powell comments citing high inflation as a risk to the full employment part of the Fed's dual mandate, combined with his earlier remarks that it is time to drop the word "transitory" to describe inflation, are being interpreted hawkishly. The DXY has recently crossed to the north of 96.00 as US yields recover from earlier session lows.  

• Gold advances firmly, as US-10 year T-bond yields drop ten basis points, down to 1.43%.
• Risk-off market sentiment boosted the prospects of the XAU/USD, as the COVID-19 omicron variant threatens to derail the economic growth.
• XAU/USD Technical outlook: A break above $1,807 would expose $1,815, followed by $1,834.

Gold (XAU/USD) edges high during the New York session, jumping from $1,780 daily low earlier in the day towards $1,807 at press time, amid comments of Moderna’s CEO in an interview with the Financial Times, predicted a drop in existing vaccines efficacy, spurring a flight to safe-haven assets, as portrayed by US equity futures indices falling, ahead of the Wall Street’s open. 

That boosted the prospects of the yellow metal, which has strengthened on the back of falling US T-bond yields, acting as a headwind for the greenback. The US 10-year Treasury yield is plummeting ten basis points, sitting at 1.43%, while the US Dollar Index, which measures the greenback’s value against a basket of its peers, falls sharply 0.74%, breaking below the 96.00 threshold, sitting at 95.65 at press time.

It seems that market participants are focused on the coronavirus omicron developments and its impact on the global economy. The fall in US bond yields reflects investors’ postures, scaling back bets of Fed hiking rates from three to two increases, depending on the ongoing COVID-19 developments. 

Therefore, gold has and will keep benefitting from the abovementioned, unless data of the omicron variant show that despite being contagious, it would not be as dangerous as another COVID-19 variant.

The US macroeconomic docket so far featured the S&P/Case-Shiller Home Price Index (MoM) for September, which rose by 19,1%, more than the 19.3% expected. Meanwhile, the Chicago Purchasing Managers Index for November increased to 61.8, lower than the 67 estimated.

XAU/USD Price Forecast: Technical outlook

Gold in the 1-hour chart is approaching resistance at the R2 daily pivot level at $1,807. The 50 and the 100-hour simple moving averages (SMA’s) were left behind around the $1,796 area, while the 200-hour SMA lies in the confluence of the R3 daily pivot at $1,815, which is also the November 26 high.

On the way up, $1,815 would be the most robust line of defense for USD bulls, which in the case to be broken, would expose the September 3 high at $1,834.

On the flip side, failure to break above the former would expose the $1,800 figure, followed by the confluence of the 50 and the 100-hour SMA’s around the $1,892-94 range.

Fed Chair Jerome Powell is testifying before the Committee on Banking, Housing, and Urban Affairs of the US Senate alongside US Treasury Secretary Janet Yellen.

Key takeaways: 

"Higher prices are generally related to supply-demand issues."

"Also the case that price increases have spread more broadly."

"Risk of higher inflation has increased."

"It's a good time to retire 'transitory' for inflation."

Market Reaction

The US dollar, short-end and real US yields all popped higher in response to Powell's hawkish comment that it is time to retire the word "transitory" to describe inflation. 

According to the latest Consumer Confidence survey conducted by the US Conference Board, US Consumer Confidence fell to 109.5 in November from 113.8 in October. That was a larger drop than the expected decline to 111.0.

The Present Situation index fell to 142.5 in November from October's downwardly revised reading of 145.5 from 147.4. Meanwhile, the US Consumer Expectations index fell to 87.6 in November from 89.0 in October. 

The Jobs Plentiful versus Hard to Get ratio hit a record high at 46.90. 

Market Reaction

FX markets have not seen any notable reaction to the latest CB consumer confidence data, as markets await comments from Fed Chair Jerome Powell and US Treasury Secretary Janet Yellen in a testimony before the Senate Committee on Banking, Housing, and Urban Affairs. 

• USD/TRY moves further north of the 13.0000 mark.
• The lira remains depressed as bets on extra rate cuts raise.
• Investors’ attention shifts to the CPI release on Thursday.

The Turkish lira extends the drop and lifts USD/TRY to fresh all-time highs near 13.2000 on Tuesday.

USD/TRY now looks to data, CBRT

USD/TRY advances for the third session in a row on Tuesday and records new all-time peaks near the 13.2000 mark, always on the back of the intense depreciation of the Turkish currency.

Indeed, President Erdogan’s recent defence of the low-rates policy from the Turkish central bank did nothing but put the lira under extra downside pressure, pushing spot to fresh tops.

In the meantime, all the attention is expected to be on the release of the Turkey’s inflation figures on Thursday, with consensus already pointing to a reading above 20% in November.

USD/TRY key levels

So far, the pair is gaining 2.59% at 13.1069 and a drop below 11.5451 (low November 24) would expose 10.8767 (20-day SMA) and then 9.7214 (55-day SMA). On the other hand, the next up barrier lines up at 13.1838 (all-time high Nov.24) followed by 14.0000 (round level).

• The Chicago PMI dropped to its lowest level since February in November at 61.8. 
• The dollar came under some modest selling pressure. 

The Chicago Purchasing Managers Index (PMI) fell to 61.8 in November from 68.4 in October, data released by ISM-Chicago, Inc revealed on Tuesday. That was a bigger decline than the expected drop to 67.0 and took the Chicago PMI to its lowest level since February. 

Market Reaction

The dollar index appears to have seen some modest weakness on the data, with the DXY slipping to fresh session lows in the 95.50s in recent trade. 

US pharmaceutical giant Merck said on Tuesday that it expected its antiviral pill to show similar activity against any new Covid-19 variant, including Omicron, according to Reuters. The company's remarks come after the Regeneron CEO said live on CNBC earlier in the session that he thought Merck's pill would no longer work. 

Market Reaction

Markets do not seem to have reacted to the latest headlines much. Merck's pill does not yet form an important part of the global prevention/Covid-19 treatment regime. Markets are more sensitive right now to headlines about vaccine efficacy, the transmissibility of Omicron and the severity of illness when infect by the new variant. 

ECB governing council member and Bank of Spain governor Pablo Hernandez de Cos said on Tuesday that recent developments anticipate a significant downward revision to the 2021 economic growth outlook, plus a more moderate slowdown in 2022. The recent inflation spike, supply bottlenecks and rise in Covid-19 infections in Europe, he added, could lead to a slight downwards revision to Spanish GDP growth forecasts for Q4 and early 2022. 

Market Reaction

The euro has not seen a significant reaction to the latest comments from de Cos. 

According to the latest data from the Federal Housing Finance Agency, the monthly House Price Index rose to 354.6 in September from 351.5 in August, a 0.9% MoM rise. That took the YoY rate of house price increase to 17.7% on the month. 

The S&P/Case-Shiller Home Price Index, released by Standard & Poor's, showed prices rising at a YoY rate of 19.1% in September, slightly below the expected pace of 19.3% and a tad down from August's YoY rate of 19.6%. 

Market Reaction

FX markets have not responded to the latest US house price numbers. 

FOMC Chairman Jerome Powell will be testifying before the Committee on Banking, Housing, and Urban Affairs of the US Senate alongside US Treasury Secretary Janet Yellen on Tuesday, November 30, at 1500 GMT.

The hearing is entitled “CARES Act Oversight of Treasury and the Federal Reserve: Building a Resilient Economy.”

About Jerome Powell (via Federalreserve.gov)

Jerome H. Powell took office as Chairman of the Board of Governors of the Federal Reserve System on February 5, 2018, for a four-year term. Mr. Powell also serves as Chairman of the Federal Open Market Committee, the System's principal monetary policymaking body. Mr. Powell has served as a member of the Board of Governors since taking office on May 25, 2012, to fill an unexpired term. He was reappointed to the Board and sworn in on June 16, 2014, for a term ending January 31, 2028.

Bank of England Monetary Policy Committee member Catherine Mann said on Tuesday that it was premature to talk about the timing of potential BoE rate hikes, much less how much. If Omicron puts us back into lockdown, Mann continued, some of the underpinnings in the moderation of goods price pressure may fade. 

Market Reaction

Pound sterling has not seen a notable reaction to BoE's Mann's remarks. The implied yield on the December 2021 three-month sterling LIBOR future remained steady at around 0.16%, implying only a few bps of hikes are expected next month, suggesting a low probability of a BoE rate hike. 

• EUR/USD resumes the upside and revisits the 1.1370 zone.
• Further upside is seen initially challenging the 1.1374/89 band.

EUR/USD gathers extra pace and surpasses the 1.1300 barrier on quite a convincing fashion on Tuesday.

In case the recovery picks up further impulse, then the pair is forecast to test 1.1374 (November 18) ahead of the minor hurdle at the 20-day SMA at 1.1389.

The probability of further losses remains unchanged as long as EUR/USD trades below the 2-month resistance line (off September’s peak) near 1.1560. In the longer run, the offered stance in spot is expected to persist while below the 200-day SMA at 1.1828.

EUR/USD daily chart

• A combination of factors dragged USD/JPY to the lowest level since October 11 on Tuesday.
• COVID-19 woes, the risk-off mood benefitted the safe-haven JPY and exerted heavy pressure.
• A steep decline in the US bond yields weighed on the USD and contributed to the downfall.

The USD/JPY pair maintained its heavily offered tone through the early North American session and was last seen trading around the 112.75-70 region, or the lowest level since October 11.

Following the previous day's two-way price moves, the USD/JPY pair met with fresh supply on Tuesday and prolonged its retracement slide from a near five-year peak, around mid-115.00s touched last week. The risk-off impulse in the markets provided a strong boost to the safe-haven Japanese yen. This, along with a broad-based US dollar weakness contributed to the pair's ongoing decline.

The global risk sentiment took a hit amid growing concerns about the potential economic fallout from the spread of the new coronavirus variant. The market worries were exacerbated further after The chief executive of drugmaker Moderna warned that existing vaccines will be much less effective at tackling Omicron than earlier strains of COVID-19.

Meanwhile, the developments surrounding the coronavirus saga pushed back market expectations about the likely timing when the Fed would begin tightening its monetary policy. In fact, the money markets now indicate a 25 bps rate hike in September 2022 as against July 2022 already priced in. This, along with the global flight to safety, triggered a steep decline in the US Treasury bond yields.

This, in turn, weighed heavily on the greenback and was seen as another factor that aggravated the bearish pressure surrounding the USD/JPY pair. Apart from this, the downfall could further be attributed to some technical selling below the 113.00 mark. Acceptance below the mentioned handle might have already set the stage for an extension of the corrective slide.

Market participants now look forward to the US economic docket, featuring the release of Chicago PMI and the Conference Board's Consumer Confidence Index. The focus, however, will be on Fed Chair Jerome Powell's testimony before the Senate Banking Committee, which might influence the USD. This, along with the broader market risk sentiment, should provide some impetus to the USD/JPY pair.

Technical levels to watch

• DXY resumes the leg lower and breaks below 96.00.
• Next on the downside appears the 95.50 region.

DXY fades Monday’s decent bullish attempt and refocuses instead on the area well below 96.00 on Tuesday.

The next significant support comes at 95.51 (November 18), which is also reinforced by the 20-day SMA, today at 95.45.

In the meantime, while above the 2-month support line (off September’s low) near 94.10, extra gains in DXY remain well on the table. In addition, the broader constructive stance remains underpinned by the 200-day SMA at 92.47.

DXY daily chart

• WTI is at multi-month lows close to $67.00 on Tuesday as risk-off returns to dominate global markets.
• The deterioration in sentiment has been attributed to pessimistic comments from the Moderna CEO on vaccine efficacy versus Omicron.

Oil markets slumped back to print fresh multi-month lows close to $67.00 level on Tuesday as Omicron Covid-19 variant-related fears returned to the market. At present, WTI is trading down close to $3.00 on the day. Traders and market commentators cited comments from the CEO of Moderna as triggering the renewed bout of risk-off related selling of risk assets such as crude oil.

In an interview with the Financial Times, Moderna Chief Executive Stéphane Bancel said that the effectiveness of existing Covid-19 vaccines will likely drop against the new Omicron variant. “I think it's going to be a material drop (in efficacy)” he said, adding “I just don't know how much because we need to wait for the data... but all the scientists I’ve talked to . . . are like 'this is not going to be good’.”

The negative broad market reaction to these remarks demonstrates how sensitive markets are right now to headlines regarding Omicron. Depending on how vaccine-resistant the new variant is, its transmissibility and the severity of symptoms associated with infection, the outlook for the global economy is drastically different.

As far as crude oil markets are concerned, the best-case scenario would be that vaccines are still highly effective (which the Moderna CEO’s comments call into question) and that the severity of illness isn't too bad. That would likely mean that international travel restrictions, as well as internal domestic travel restrictions, wouldn’t last long and the global oil demand recovery could rumble on. As things stand, it looks as though vaccines are going to be less effective against the new variant, meaning, at a minimum, tougher international travel restrictions will stay for a while, meaning a dampened outlook for jet fuel demand.

In terms of other crude oil relevant themes to think about; OPEC+ meets this week amid speculation the group will halt oil output hikes amid recent Omicron-related developments. Meanwhile, talks between signatories of the 2015 Iranian nuclear pact have restarted. While the tone from the Iranians has been initially positive, most strategists don’t have high hopes that a deal to remove US sanctions on Iranian crude oil exports will come any time soon, amid maximalist Iranian demands. Crude oil traders would also do well to keep an eye on US inventory numbers, with the private weekly API report out at 2130GMT on Tuesday ahead of Wednesday’s official EIA report.

Bank of England Monetary Policy Committee member Catherine Mann said on Tuesday that the newly discovered Omicron variant raises particular question marks over consumer confidence and may alter the rotation to service spending from spending on goods, according to Reuters. Omicron could leave us in a situation where there is more slack demand for consumer services, she added. Mann did not directly comment on how the Omicron variant impacts the outlook for gradual, expected BoE monetary tightening in the coming months/years.

On inflation expectations, Mann added that the bank remains confident that inflation expectations remain well-anchored. 

Market Reaction

GBP has not seen any reaction to the comments, which did not tough on BoE monetary policy. 

• Q3 GDP beat expectations, coming in at 5.4% annualised versus forecasts for 3.0%. 
• The loonie was not responsive, likely due to the ongoing drop in oil prices.  

Canada's Real Gross Domestic Product (GDP) expanded at a monthly rate of 0.1% in September, data published by Statistics Canada showed on Tuesday. This reading was in line with the market expectation for a growth rate of 0.1% MoM.

The annualised pace of GDP growth in Q3 was also released and came in at 5.4%, significantly above expectations for a growth rate of 3.0%. This in part owes to a positive revision to the MoM pace of GDP growth in August to 0.6% from 0.4%. 

Market Reaction

Despite a much stronger than expected GDP number for Q3, the loonie has not seen any reaction to the latest data. Indeed, the drop in crude oil prices continues to accelerate which is capping any potential gains the loonie may have enjoyed in wake of the data.  

• AUD/USD staged a goodish intraday rebound from sub-0.7100 levels amid weaker USD.
• The risk-off impulse, a more dovish RBA could cap gains for the perceived riskier aussie.
• Investors now look forward to the US data/Powell’s testimony for some trading impetus.

The AUD/USD pair built on its intraday recovery from YTD low and climbed to the top end of its daily trading range, closer to mid-0.7100s heading into the North American session.

Having shown some resilience below the 0.7100 mark, the AUD/USD pair witnessed a turnaround from the lowest level since November 2020 amid a broad-based US dollar weakness. The developments surrounding the coronavirus saga forced investors to push back their expectations about the likely timing when the Fed would begin tightening its monetary policy. This, in turn, undermined the greenback and prompted some short-covering move around the major.

In fact, the money markets now indicate a 25 bps rate hike in September 2022 as against July 2022 already priced in. This, along with the global flight to safety, triggered a steep decline in the US bond yields, which was seen as another factor that weighed heavily on the greenback. That said, the risk-off impulse – as depicted by a sharp fall in the equity markets – might keep a lid on any further gains for the perceived riskier Australian dollar.

Growing market worries about the potential economic fallout from the spread of the new coronavirus variant took its toll on the global risk sentiment. The mood deteriorated further after The chief executive of drugmaker Moderna warned that existing vaccines will be much less effective at tackling Omicron than earlier strains of Covid-19. This, along with a more dovish stance by the Reserve Bank of Australia, could act as a headwind for the AUD/USD pair.

The fundamental backdrop still seems tilted in favour of bearish traders, warranting some caution for bullish traders. Hence, it will be prudent to wait for a strong follow-through buying beyond the 0.7155-60 immediate hurdle before confirming that the AUD/USD pair might have formed a near-term bottom. Next on tap will be the US economic docket, featuring the release of Chicago PMI and the Conference Board's Consumer Confidence Index.

The key focus, however, will be on Fed Chair Jerome Powell's testimony before the Senate Banking Committee. Powell's remarks will influence market expectations about the Fed's near-term policy outlook and drive the USD demand. Apart from this, traders will take cues from the broader market risk sentiment to grab some short-term opportunities around the AUD/USD pair.

Technical levels to watch

• Silver was seen consolidating recent losses to the lowest level since October 13.
• The set-up favours bearish trades and supports prospects for additional losses.
• Any recovery attempt could be seen as a selling opportunity and remain capped.

Silver lacked any firm directional bias on Tuesday and seesawed between tepid gains/minor losses heading into the North American session. The white metal was last seen trading around the $22.85-80 region, just above the lowest level since October 13 touched in the previous day.

Looking at the technical picture, the XAG/USD now seems to have found acceptance below the $23.00 round-figure and the 61.8% Fibonacci level of the $21.42-$25.41 strong move up. This comes on the back of the recent break through the 100-day SMA and an ascending channel confluence support, which, in turn, favours bearish traders.

The negative outlook is reinforced by the fact that technical indicators on the daily chart are holding deep in the negative territory and are still far from being in the oversold zone. Some follow-through selling below the $22.70-65 region will reaffirm the bearish bias and pave the way for a further near-term depreciating move.

The XAG/USD might then accelerate the slide towards testing the next relevant support near the $22.30-25 region before eventually dropping to the $22.00 round-figure mark. The downward trajectory could further get extended towards the YTD low, around the $21.45-40 region set on September 29.

On the flip side, any attempted recovery now seems to confront stiff resistance near the $23.00-10 region. A further move up would now be seen as a selling opportunity and runs the risk of fizzling out quickly near the $23.40-45 region. The latter coincides with the 50% Fibo. level, which should cap the upside for the XAG/USD, at least for now.

Silver daily chart

Technical levels to watch

• EUR/GBP has pushed above 0.8500 this Tuesday amid a fresh wave of Omicron fears.
• The pair is being supported by the euro’s safe-haven appeal and an increasingly dovish shift in the market’s BoE pricing.

EUR/GBP run of gains looks set to extend into a fourth day, with the pair up another 0.35% on Tuesday and breaking above the key 0.8500 level in recent trade for the first time since 15 November. The latest move higher has taken the pair back to the north of its 21 and 50-day moving averages which reside at 0.8477 and 0.8491 respectively, both of which levels should now function as support. In terms of resistance to the upside, there is a balance area around 0.8520 that has acted as both support and resistance over the last two months, but the next big level is the 200DMA close to 0.8560 and then the November high at 0.8600.

Risk-off

Markets reverted to risk-off on mood on Tuesday, with global stock markets and crude oil (and other industrial/cyclical commodities) coming under pressure while safe-haven assets are enjoying a bid. The risk-off has been attributed by market commentators to comments from the CEO of Moderna, who said existing vaccines would be less effective against the newly discovered, highly evolved Omicron variant. There were also reports in the WSJ that makers of antiviral treatment Regeneron and Eli Lilly had seen the efficacy of their treatments fall versus the new variant.

However, other health officials and vaccine makers maintain that vaccines will still provide a decent degree of protection. Oxford University (who helped develop the AstraZeneca Covid-19 jab) said there is no evidence yet that vaccines won’t protect against severe disease from Omicron. In that sense, the market’s risk-on and risk-off moves need to be taken with a pinch of salt at the moment as the Omicron picture becomes clearer.

Euro outperformance, sterling struggles

Back to FX markets; the euro has been favoured as a safe-haven currency in recent days, more so than even the US dollar, which is one key reason why it continues to outperform pound sterling. Analysts have cited an unwind in carry trades amid risk off conditions as a key source of support for the single currency, as well as its lesser exposure to a dovish repricing of rate hike expectations. Much hotter than expected Eurozone inflation data in November didn’t impact FX markets too much at the time, but is hardly hindering the euro.

Meanwhile, Sterling remains vulnerable to an Omicron-related worsening of its domestic Covid-19 situation and markets continue to wind down expectations for a rate hike from the BoE next month. According to ING; “with the 16 December BoE rate decision drawing closer, a worsening of the virus situation globally and specifically in the UK, may not only put upward pressure on EUR/GBP due to the pound’s higher sensitivity to risk sentiment but may also mean markets could increasingly price out a December rate hike by the BoE”. However, the bank continues, “it is too early to draw any conclusions on that, but for today, a choppy risk environment may send EUR/GBP above 0.8500”.

• EUR/JPY bounces off recent lows in the 127.50 region.
• Above 129.50 the selling pressure should mitigate somewhat.

Despite the current daily rebound, the outlook for EUR/JPY still falls on the fragile side, to be optimistic.

The continuation of the downtrend remains well on the cards for the time being, although further recovery faces the initial hurdle at the 10-day SMA at 128.92. Further up comes the weekly top around 129.60 (November 24) and if cleared, then the downside pressure is expected to alleviate somewhat.

Looking at the broader picture, the outlook for the cross is expected to remain negative while below the 200-day SMA, today at 130.55.

EUR/JPY daily chart

• A fresh leg down in oil prices undermined the loonie and pushed USD/CAD to a two-month high.
• A steep decline in the US bond yields weighed on the USD and kept a lid on any meaningful gains.
• Investors now look forward to Canadian GDP, US data and Powell’s testimony for some impetus.

The USD/CAD pair trimmed a part of its intraday gains to over a two-month high and was last seen trading around the 1.2770 region, up over 0.15% for the day.

Following the previous day's good two-way price moves, the USD/CAD pair regained positive traction on Tuesday and shot to the highest level since September 22 amid a fresh leg down in crude oil prices. the detection of a new and possibly vaccine-resistant coronavirus variant fueled worries about the oil demand outlook and dragged spot prices to the lowest level since August 25. This, in turn, undermined the commodity-linked loonie and turned out to be a key factor that provided a goodish lift to the major.

Bulls, however, struggled to find acceptance above the 1.2800 mark amid the heavily offered tone surrounding the US dollar. The developments surrounding the coronavirus saga forced pushed back market expectations about the likely timing when the Fed would begin tightening its monetary policy. In fact, the money markets now indicate a 25 bps rate hike in September 2022 as against July 2022 already priced in. This, along with the risk-off impulse, triggered a steep decline in the US bond yields and weighed on the greenback.

Meanwhile, the USD/CAD pair has now retreated over 40 pips from the daily swing high, though any further downfall seems limited ahead of the Canadian GDP report. Traders on Tuesday will further take cues from the US economic docket, featuring the release of Chicago PMI and the Conference Board's Consumer Confidence Inxed. The key focus, however, will be on Fed Chair Jerome Powell's testimony before the Senate Banking Committee.

Powell's remarks will influence market expectations about the Fed's near-term policy outlook and drive the USD demand. Apart from this, oil price dynamics will further be looked upon for some impetus and short-term trading opportunities around the USD/CAD pair.

Technical levels to watch

Axel Rudolph, Senior FICC Technical Analyst at Commerzbank, suggested that prices of the barrel of the NYMEX Light Crude Oil could attempt some consolidation in the low-$67.00s in the near term.

Key Quotes

“NYMEX January Light Crude Oil’s brutal descent from its October peak at 83.83 has taken it to its current November low at 67.06, to around the 200 day moving average at 67.44. Around it we expect to see at least short-term consolidation.”

“If so, the 74.25/76 October 7 and November 22 lows may be revisited.”

“Further resistance comes in between the early November low at 77.23 and the 55 day moving average at 77.32.”

“While the next higher November 24 high at 79.23 isn’t bettered, however, overall downside pressure should retain the upper hand.”

“A slip below the September trough at 66.35 would put the August low at 60.77 back on the plate.”

The Oxford University said on Tuesday that there is no evidence so far that the vaccines will not provide high levels of protection against the severe diseases from the coronavirus Omicron variant, as reported by Reuters.

"We have the necessary tools and processes in place for rapid development of an updated covid-19 vaccine if it should be necessary," Oxford University further added.

Market reaction

These comments failed to help the market sentiment improve. As of writing, the UK's FTSE 100 Index was down 1.07% on a daily basis at 7,033.

Andrea Ammon, who chairs the European Centre for Disease Prevention and Control (ECDC), said on Tuesday that they have confirmed 42 cases of the Omicron variant in the EU, as reported by Reuters.

Ammon further noted that the severity of the disease in those cases was mild and added that results on whether omicron escapes vaccines will be available in a couple of weeks.

Market reaction

Safe-haven flows continue to dominate the financial markets. As of writing, the Euro Stoxx 50 Index was down 1.4% on a daily basis.

Economist at UOB Group Barnabas Gan assesses the latest industrial production figures in Singapore.

Key Takeaways

“Singapore’s October industrial production expanded 16.9% y/y (+2.4% m/m sa), bucking the previous month’s contraction of 2.2% y/y (-1.9% m/m sa) … Excluding biomedical manufacturing, industrial production rose 9.7% y/y. Accounting for the latest data, Singapore’s industrial production grew 12.8% year-to-date.”

“The expansion was underpinned by a broad uptick in all key sectors.”

“Similarly, a mix of low base effects and a stronger production momentum has also benefited the transport engineering, chemicals and general manufacturing clusters.”

“Given the strong performance in Singapore’s industrial production in the first ten months of 2021, we upgrade our full-year manufacturing growth to 12.0% y/y, where we pencil industrial production growth at 9.3% y/y and 7.1% y/y in November and December 2021 respectively.”

The longer-term bearish stance in AUD/USD is seen unchanged while below the 0.7569/11 band, suggested Axel Rudolph, Senior FICC Technical Analyst at Commerzbank.

Key Quotes

“AUD/USD has reached the August low at .7106 around which it is expected to find at least short-term support. Below it lies the 7077/32 July and December 2019 as well as June 2020 highs.”

“Initial resistance above the one-month downtrend line at .7211 is seen at the 55-day ma at .7332, then .7430, the 9^th November high.”

“Overall longer-term bearish pressure will be maintained below .7511/69 (200-day ma, October high and the 7-month downtrend).”

Jens Weidmann, outgoing European Central Bank (ECB) Governing Council member and Bundesbank President, said on Tuesday that the ECB should be wary of any pressure to maintain its very loose policy for longer than the price outlook dictates, per Reuters.

"The more broadly central banks interpret their monetary policy mandate, the more likely they are to become entangled in politics," Weidmann added.

Market reaction

The EUR/USD pair preserves its bullish momentum during the European trading hours and it was last seen rising 0.65% on a daily basis at 1.1363.

• EUR/USD gathers further traction and advances to the 1.1370 region.
• EMU Flash CPI rose 4.9% YoY and Core CPI gained 2.6% YoY.
• German Unemployment Change shrank by 34K, jobless rate at 5.3%.

The single currency regains the upside and pushes EUR/USD to fresh 2-week tops in the 1.1365/70 band on turnaround Tuesday.

EUR/USD looks to data, risk appetite

EUR/USD quickly fades Monday’s pullback and resumes the upside further north of 1.1300 the figure in the first half of the week.

Diminishing US yields amidst rising risk-off sentiment continue to undermine the risk complex and keep the greenback under downside pressure for the time being, always in a context dominated by the discovery of a new COVID variant named omicron and rising uncertainty on the potential impact on the global economy.

In the domestic docket, preliminary inflation figures in the broader Euroland expect the headline CPI to rise 4.9% YoY and 2.6% when it comes to the Core CPI in November. Earlier in the session, the German Unemployment Change dropped by 34K persons, and the Unemployment Rate ticked lower to 5.3% also for the current month.

Across the pond, the testimony by Chief Powell will take centre stage followed by November’s Consumer Confidence gauged by the Conference Board.

What to look for around EUR

EUR/USD advances well past the key 1.1300 hurdle to new tops amidst renewed dollar weakness. 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 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 gaining 0.65% at 1.1364 and faces the next up barrier at 1.1374 (high November 18) followed by 1.1389 (20-day SMA) and finally 1.1464 (weekly high Nov.15). 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/GBP gained strong positive traction on Tuesday and shot to over a two-week high.
• Weaker USD, hotter-than-expected flash Eurozone CPI benefitted the shared currency.
• Brexit uncertainties acted as a headwind for the British pound and remained supportive.

The EUR/GBP cross maintained its bid tone near the key 0.8500 psychological mark, or over two-week high and had a rather muted reaction to the flash Eurozone CPI report.

The cross regained positive traction on Tuesday and built on last week's strong recovery move from the 0.8380 support zone, or the lowest level since February 2020. The shared currency witnessed a fresh bout of a short-covering move amid the heavily offered tone surrounding the US dollar. This, in turn, was seen as a key factor that provided a goodish lift to the EUR/GBP cross.

The common currency was also underpinned by hotter-than-expected Eurozone consumer inflation figures for November. In fact, the headline CPI accelerated to a 4.9% YoY rate in November as against market expectations for a slide to 3.7% from the 4.1% rise reported in the previous month. Adding to this, the core reading also surpassed consensus estimates and surged past the European Central Bank's 2% target, arriving at a 2.6% YoY rate during the reported month.

On the other hand, persistent Brexit-related uncertainties further contributed to the British pound's relative underperformance against its European counterpart and remained supportive. The UK-EU impasse over the Northern Ireland Protocol, along with the worsening row over the post-Brexit fishing rights between France and Britain continued acting as a headwind for the sterling.

The combination of factors favours bullish traders and support prospects for additional gains. The positive outlook is reinforced by the fact that the EUR/GBP cross has now found acceptance above the 0.8500 mark. Hence, a subsequent move towards testing the next relevant hurdle, around the 0.8535-40 horizontal zone, remains a distinct possibility.

Technical levels to watch

The annualized Eurozone Consumer Price Index (CPI) jumps by 4.9% in November, surprising markets to the upside while higher from the previous rise of 4.1%, the latest data published by Eurostat showed on Tuesday. The consensus forecast was for a drop to 3.7%.

The core figures arrived at 2.6% YoY in November when compared to 1.9% expectations and 2.0% registered in October.

Key details (via Eurostat)

“Looking at the main components of euro area inflation, energy is expected to have the highest annual rate in November (27.4%, compared with 23.7% in October), followed by services (2.7%, compared with 2.1% in October), non-energy industrial goods (2.4%, compared with 2.0% in October) and food, alcohol & tobacco (2.2%, compared with 1.9% in October).”

EUR/USD reaction

EUR/USD is little moved on hotter Eurozone inflation. The spot is currently adding 0.61% on the day, trading at weekly highs near 1.1365.

Commenting on the new coronavirus variant's potential impact on the economic activity, European Union (EU) Economy Commissioner Paolo Gentiloni told Bloomberg that economies are adapted to the crisis, as reported by Reuters.

"There is no reason to panic," Gentiloni added.

Market reaction

These comments don't seem to be helping the market mood improve. As of writing, the Euro Stoxx 50 Index was down 1.6% on the day and Germany's DAX 30 was losing 1.5%. Moreover, US stock index futures are losing between 0.7% and 1.45%.

• Gold price keeps the corrective upside intact towards $1,800.
• Omicron covid fears smash the US dollar alongside the Treasury yields.
• Gold looks to extend rebound amid renewed coronavirus fears.

Gold has staged a decent comeback, as bulls look to recapture the $1,800 mark amid a revival of the Omicron covid variant fears. A flight to safety theme remains in vogue, as investors scurry to the US Treasuries, killing the demand for the yields. The sell-off in the US rates have heavily weighed on the dollar, boosting gold’s appeal. However, should risk-aversion intensify the greenback could regain its safe-haven status, capping the gold price recovery.

Read: Gold Price Forecast: Risks remain skewed to the downside for XAU/USD as key support caves in

Gold Price: Key levels to watch

The Technical Confluences Detector shows that the gold price is extending its recovery towards $1,799-$1,800, which is the convergence of the previous day’s high and Fibonacci 23.6% one-month.

The next relevant upside barrier for gold bulls is pegged at 1,806, where the Fibonacci 38.2% one-week lies.

Further up, the pivot point one-day R2 at $1,808 will test the bearish commitment on the road to recovery.

The previous month’s high at $1,814 continues to remain on the buyers’ radars.

On the flip side, the immediate downside seems guarded by a dense cluster of healthy support levels around $1,793.

At that point, the Fibonacci 61.8% one-day coincides with the SMA50 one-day and SMA200 one-day.

The next critical cushion is seen at $1,789, which is a confluence of the Fibonacci 38.2% one-day and SMA5 one-day. Floors will then 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.

• The heavily offered tone surrounding the USD pushed GBP/USD back above mid-1.3300s.
• A steep fall in the US bond yields turned out to be a key factor that weighed on the USD.
• Brexit-related uncertainties could act as a headwind for the British pound and cap gains.

The GBP/USD pair caught fresh bids during the early European session and shot to the 1.3365-70 area, or a near one-week high in the last hour.

Following a brief consolidation through the first half of the trading action on Tuesday, the GBP/USD pair regained positive traction and is now looking to build on its recent bounce from a YTD low. The uptick was exclusively sponsored by the heavily offered tone surrounding the US dollar, weighed down by a steep decline in the US Treasury bond yields.

The detection of a new and possibly vaccine-resistant coronavirus variant – Omicron – seemed to have dashed market expectations for an early policy tightening by the Fed. This, along with the global flight to safety, dragged the yield in the benchmark 10-year US government bond to a three-week low, around the 1.45% threshold, and undermined the greenback.

Meanwhile, worries about the potential economic fallout from the spread of the new coronavirus variant took its toll on the global risk sentiment. This was evident from a selloff in the equity markets, though did little to provide any respite to the safe-haven USD. That said, persistent Brexit-related uncertainties might cap gains for the GBP/USD pair.

The UK-EU impasse over the Northern Ireland Protocol, along with the worsening row over the post-Brexit fishing rights between France and Britain could act as a headwind for the British pound. This, in turn, warrants some caution for aggressive bullish traders and before confirming that the GBP/USD pair has formed a near-term bottom near the 1.3280-75 region.

There isn't any major market-moving economic data due for release from the UK, while the US economic docket features Chicago PMI and the Conference Board's Consumer Confidence Index. The key focus, however, will be on Fed Chair Jerome Powell's testimony before the Senate Banking Committee, which could influence the USD and provide some impetus to the GBP/USD pair.

Technical levels to watch

• The risk-off impulse dragged the perceived riskier aussie to over a one-year low on Tuesday.
• COVID-19 jitters took its toll on the global risk sentiment and triggered a selloff in equities.
• Declining US bond yields weighed heavily on the USD and helped limit losses for the major.

The AUD/USD pair trimmed a part of its intraday losses to the lowest level since November 2020 and was last seen trading around the 0.7115 region, down 0.20% for the day.

Concerns about the potential economic fallout from the spread of a new vaccine-resistant variant – Omicron – triggered a fresh wave of the global risk-aversion trade. This was evident from a sharp fall in the equity markets, which, in turn, was seen as a key factor that drove flows away from the perceived riskier aussie. The AUD/USD pair dropped to sub-0.7100 levels, though the heavily offered tone surrounding the US dollar helped limit further losses, at least for the time being.

The latest developments surrounding the coronavirus saga now seemed to have dashed market expectations for an early policy tightening by the Fed. This, along with the global flight to safety, triggered a steep decline in the US Treasury bond yields. In fact, the yield on the benchmark 10-year US government bond dropped to a three-week low, back closer to the 1.45% threshold, and weighed heavily on the greenback. This, in turn, assisted the AUD/USD pair to recover around 25-30 pips.

That said, any meaningful upside still seems elusive amid a more dovish stance adopted by the Reserve Bank of Australia. Moreover, the AUD/USD pair's inability to attract buyers suggests that the near-term bearish trend witnessed over the past one month or so is still far from being over. Hence, attempted recovery moves might still be seen as a selling opportunity and run the risk of fizzling out rather quickly near the 0.7155-60 supply zone, or weekly high set in the previous day.

Market participants now look forward to the US economic docket, highlighting the release of Chicago PMI and the Conference Board's Consumer Confidence Index during the early North American session. The key focus, however, will be on Fed Chair Jerome Powell's testimony before the Senate Banking Committee. Powell's remarks will influence expectations about the Fed's next policy move and drive the USD demand, which, in turn, might produce short-term trading opportunities around the AUD/USD pair.

Technical levels to watch

According to Axel Rudolph, Senior FICC Technical Analyst at Commerzbank, the decline in USD/CHF should meet a contention area around 0.9115, where the 2020-2021 uptrend sits.

Key Quotes

“USD/CHF has reached .9368, the September high, and made its current November high at .9373 before swiftly coming off again and slipping towards the 200 day ma at .9180. The current short-term downside should be contained by the 2020-2021uptrendat.9115.”

“On the way lies .9150, the October 25 low.”

“If .9373 and the next higher early March high at .9375 were to be overcome, the April peak at .9472 would be next in line.”

USD/CNH has now likely moved into a consolidative phase, likely between 6.3700 and 6.4000 for the time being, commented FX Strategists at UOB Group.

Key Quotes

24-hour view: “We expected USD to ‘weaken to 6.3830’ yesterday. USD subsequently dropped to 6.3810, rebounded to 6.3950 before dropping back down again. Downward momentum is beginning to build and a break of 6.3800 would not be surprising. However, the next support at 6.3750 is likely out of reach for now. Resistance is at 6.3880 followed by 6.3930.”

Next 1-3 weeks: “Our latest narrative was from last Thursday (25 Nov, spot at 6.3940) where we held the view that mild upward pressure could lead to USD edging higher to 6.4070. USD has not been able to make any headway on the upside and the mild upward pressure has dissipated. The outlook is mixed and USD is likely to trade between 6.3700 and 6.4000 for now.”

• DXY comes under extra pressure and breaches 96.00.
• Yields in the US cash markets extend the decline on Tuesday.
• Housing data, Powell, Consumer Confidence next of note in the docket.

The US Dollar Index (DXY), which gauges the greenback vs. a bundle of its main competitors, resumes the downside and slips back to the sub-96.00 area on turnaround Tuesday.

US Dollar Index focuses on Powell, data, risk trends

The index resumes the downtrend and quickly leaves behind Monday’s recovery attempt, always on the back of declining yields and increasing concerns among investors over the recently discovered omicron variant of the coronavirus.

The dollar comes under pressure in tandem with diminishing US yields along the curve, where the front end and the belly navigate multi-day lows in the 0.48% area and near 1.45%, respectively. The longer-dubbed bond drops for the fifth consecutive session to the sub-1.83% area.

In the meantime, market participants continue to closely follow the progress of the omicron variant against the backdrop of the already increasing COVID cases and its potential impact on the economic outlook.

On the latter, Chairman Powell said on Monday that increasing cases as well as the omicron variant threaten the prospects for employment and the economic activity and increase the uncertainty around inflation.

Busy day in the US calendar, as the FAFH’s House Price Index is due seconded by the S&P/Case-Shiller Index and the Chicago PMI. In addition, the Conference Board will publish its Consumer Confidence gauge.

On the Fed’s front, Chief Powell will testify on the Coronavirus and CARES Act before the Senate Committee on Banking, Housing and Urban Affairs. Additionally, NY Fed J.Williams and Vice Chair R.Clarida – both permanent voters – are also due to speak.

What to look for around USD

The dollar extends the corrective downside following last week’s cycle tops near the 97.00 barrier (November 24). In the meantime, the move lower in US yields seems to weigh on the buck for the time being, while the current backdrop of rising COVID concerns, fresh safe haven demand, the “higher-for-longer” narrative around current elevated inflation and speculations of a Fed’s lift-off earlier than anticipated remain all factors supportive of the dollar for the time being.

Key events in the US this week: 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 losing 0.38% at 95.82 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 Nov.26) followed by 95.51 (low Nov.18) and finally 94.96 (weekly low Nov.15).

FX option expiries for November 30 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts        

• 1.1230 426m
• 1.1255 1b
• 1.1300 554m
• 1.1355 550m

- GBP/USD: GBP amounts        

• 1.3500 313m

- USD/JPY: USD amounts                     

• 113.80 1.6b
• 114.50 718m
• 115.00 2.8b

- AUD/USD: AUD amounts

• 0.7350 545m

- USD/CAD: USD amounts       

• 1.2600 410m

• GBP/JPY witnessed fresh selling on Tuesday and dropped to the lowest level since October 4.
• The risk-off impulse underpinned the safe-haven JPY and exerted heavy pressure on the cross.
• Weaker USD benefitted the GBP and helped limit losses; Brexit woes still favour bearish traders.

The GBP/JPY cross trimmed a part of its intraday losses to the lowest level since October 4 and was last seen trading around the 150.80-85 region, still down 0.20% for the day.

The cross struggled to capitalize on its modest intraday gains, instead met with a fresh supply near the 151.60-65 area amid the emergence of fresh buying around the safe-haven Japanese yen. Investors now seem worried about the potential economic fallout from the spread of a new vaccine-resistant variant of the coronavirus. This, in turn, triggered a fresh wave of the global risk-aversion trade, which was evident from a selloff in the equity markets.

The already weaker market sentiment deteriorated further after Moderna’s Chief Executive Stéphane Bancel predicted that existing vaccines will be much less effective at tackling Omicron than earlier strains of Covid-19. This, in turn, boosted demand for traditional safe-haven assets and dragged the GBP/JPY cross to an intraday low level of 150.42. However, a modest pickup in demand for the British pound helped limit any further losses.

The sterling drew some support from the heavily offered tone surrounding the US dollar, which was weighed down by a steep decline in the US Treasury bond yields. However, the UK-EU impasse over the Northern Ireland Protocol, along with the worsening row over the post-Brexit fishing rights between France and Britain acted as a headwind for the GBP. This, in turn, kept a lid on any meaningful recovery for the GBP/JPY cross.

Meanwhile, the pair's inability to gain traction favours bearish traders and supports prospects for an extension of the recent pullback from over five-year high touched in October. Hence, any recovery back above the 151.00 mark might be seen as a selling opportunity and runs the risk of fizzling out rather quickly. In the absence of relevant market moving economic releases, the GBP/JPY cross remains at the mercy of developments surrounding the coronavirus saga.

Technical levels to watch

A move below 112.70 in USD/JPY appears not favoured for the time being, noted UOB Group’s FX Strategists.

Key Quotes

24-hour view: “We expected USD to ‘consolidate and trade between 113.20 and 114.10’ yesterday. However, USD dipped briefly to 112.97 before rebounding. We continue to view the price actions as part of a consolidation and expect USD to trade between 113.30 and 114.20 for today.”

Next 1-3 weeks: “Our view from yesterday (29 Nov, spot at 113.70) still stands. As highlighted, 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.”

• A combination of factors prompted fresh selling around USD/CHF on Tuesday.
• The prevalent risk-off mood benefitted the safe-haven CHF and exerted pressure.
• Declining US bond yields undermined the USD and contributed to the selling bias.

The USD/CHF pair dropped to over a two-week low during the early European session, with bears now awaiting a sustained break below the 0.9200 round-figure mark.

Following the previous day's attempted recovery and a subsequent intraday pullback, the USD/CHF pair met with fresh supply on Tuesday and was pressured by a combination of factors. Worries about the potential economic fallout from the spread of a new vaccine-resistant variant of the coronavirus – Omicron – tempered investors' appetite for perceived riskier assets. This was evident from a sharp fall in the global equity markets, which benefitted the safe-haven Swiss franc and exerted pressure on the major.

Meanwhile, the risk-off impulse, along with reduced bets for an early policy tightening by the Fed, led to a steep decline in the US Treasury bond yields. The latest developments surrounding the coronavirus saga might have dashed hopes for an eventual Fed rate hike by mid-2022 and dragged the yield on the benchmark 10-year US government bond to a near three-week low, back closer to the 1.45% threshold. This, in turn, weighed heavily on the US dollar and further contributed to the USD/CHF pair's downfall.

With the latest leg down, the USD/CHF pair has now retreated nearly 175 pips from a multi-month peak touched last week. Some follow-through selling below the 0.9200 mark will be seen as a fresh trigger for bearish traders and set the stage for additional losses, towards testing the next relevant support near the 0.9155-50 region. Market participants now look forward to the US economic docket, featuring the release of the Conference Board's Consumer Confidence Index later during the early North American session.

The key focus, however, will be on Fed Chair Jerome Powell's testimony before the Senate Banking Committee. Powell's remarks will influence market expectations about the Fed's next policy move and drive the USD demand. Apart from this, traders will further take cues from the broader market risk sentiment to grab some short-term opportunities around the USD/CHF pair.

Technical levels to watch

• The risk-off impulse prompted fresh selling around NZD/USD on Tuesday.
• New COVID-19 variant fears continued weighing on investors’ sentiment.
• Declining US bond yields undermined the USD and helped limit the slide.

The NZD/USD pair dropped to the lowest level since November 2020 during the early European session, albeit recovered a few pips thereafter and was last seen trading around the 0.6800 mark.

Following the previous day's modest bounce, the NZD/USD pair came under fresh selling pressure on Tuesday and prolonged its one-month-old bearish trajectory. Concerns about the potential economic fallout from the spread of a new vaccine-resistant variant of the coronavirus – Omicron – continued weighing on investors' sentiment. This was evident from a fresh leg down in the global equity markets, which, in turn, was seen as a key factor that drove flows away from the perceived riskier kiwi.

Bulls seemed rather unimpressed and failed to gain any respite from the heavily offered tone around the US dollar, weighed down by declining US Treasury bond yields. The latest developments surrounding the coronavirus saga might have dashed market expectations for an early policy tightening by the Fed. This, along with the global flight to safety, dragged the yield on the benchmark 10-year US government bond to a near three-week low, back closer to the 1.45% threshold and undermined the greenback.

That said, extremely oversold conditions on short-term charts helped limit any deeper losses, rather assisted the NZD/USD pair to quickly recover around 20-25 pips from the 0.6780 region. Market participants now look forward to the US economic docket, highlighting the release of the Conference Board's Consumer Confidence Index later during the early North American session. The key focus, however, will be on Fed Chair Jerome Powell's testimony before the Senate Banking Committee.

Powell's remarks will influence market expectations about the Fed's next policy move and drive the USD demand. Apart from this, traders will further take cues from the broader market risk sentiment to grab some short-term opportunities around the NZD/USD pair.

Technical levels to watch

Here is what you need to know on Tuesday, November 30:

With trading volumes returning to normal levels following the Thanksgiving break, the dollar gathered strength during the American trading hours on Monday but the sharp decline witnessed in the US Treasury bond yields caused the currency to lose interest. November (preliminary) Consumer Price Index (CPI) data from the euro area will be looked upon for fresh impetus ahead of the Conference Board's November Consumer Confidence Index data from the US. FOMC Chairman Jerome Powell will be testifying before the US Senate Committee on Banking, Housing, and Urban Affairs on coronavirus and CARES Act.

In his prepared opening testimony, Powell will say that factors pushing inflation upward are expected to linger "well into next year." Regarding the Omicron variant, Powell will acknowledge that the new variant is posing downside risks to employment and economic growth while increasing the uncertainty surrounding inflation.

The benchmark 10-year US Treasury bond yield is currently losing more than 2% on the day at 1.46% and US stock index futures trade in the negative territory, suggesting that markets have turned risk-averse in the early European session on Tuesday. Several reports are suggesting that current vaccines are likely to be ineffective against the new coronavirus variant and investors are concerned about a slowdown in global economic activity. 

EUR/USD is edging higher in the early European trading hours on Tuesday and holding above 1.1300. Eurostat is expected to report that the Consumer Price Index in the euro area declined to 3.7% on a yearly basis in November from 4.1% in October.

GBP/USD clings to modest recovery gains above 1.3300. There won't be any high-tier macroeconomic data releases from the UK and the dollar's valuation is likely to continue to drive the pair's action.

USD/CAD continues to push higher as the commodity-sensitive loonie weakens amid falling crude oil prices. Ahead of September Gross Domestic Product data from Canada, the pair is trading at its strongest level since late September near 1.2800. In the meantime, the barrel of West Texas Intermediate is trading below $68 for the first time since September 10.

USD/JPY turned south and is currently testing the 113.00 support area after failing to climb above 114.00. Falling US T-bond yields continue to weigh on the pair.

Gold is having a difficult time rising above $1,800 but the yellow metal's losses remain limited amid renewed dollar weakness.

Cryptocurrencies: Following a three-day rebound, Bitcoin is edging lower and trading below $57,000. Ethereum seems to have gone into a consolidation phase below $4,500.

Axel Rudolph, Senior FICC Technical Analyst at Commerzbank gives his view on EUR/USD.

Key Quotes

“Last week EUR/USD bounced off the October and December 2019 highs at 1.1240/1.1180 as expected above which it is to remain over the next few days. Minor resistance can be spotted between the 1.1374/88 November 18 high and 20 day ma. Further up tough resistance comes in at the 1.1594 5-month downtrend and while capped there, the overall bias remains negative.”

“Below 1.1160 (TD support) would target 1.1000, the 78.6% retracement of the move seen in 2020.”

• USD/JPY witnessed fresh selling on Tuesday and dropped to a near three-week low.
• The risk-off mood benefitted the safe-haven JPY and exerted pressure on the major.
• Declining US bond yields weighed on the USD and contributed to the ongoing slide.

The USD/JPY pair dropped to a near three-week low heading into the European session, with bears still awaiting sustained weakness below the 113.00 round-figure mark.

The pair struggled to capitalize on its early positive move and once again met with fresh supply in the vicinity of the 114.00 mark. The global risk sentiment took a hit amid worries about the potential economic fallout from the spread of a new vaccine-resistant variant of the coronavirus – Omicron. This was evident from a fresh leg down in the equity markets, which boosted demand for the safe-haven Japanese yen and exerted downward pressure on the USD/JPY pair.

The already weaker sentiment deteriorated further after Moderna’s Chief Executive Stéphane Bancel predicted that existing vaccines will be much less effective at tackling Omicron than earlier strains of Covid-19. Bearish traders further took cues from the ongoing steep decline in the US Treasury bond yields, which weighed heavily on the US dollar. This was seen as another factor that contributed to the USD/JPY pair's slide to the lowest level since November 10.

In fact, the yield on the benchmark 10-year US government bond dropped back closer to the 1.45% threshold amid reduced bets for an early policy tightening by the Fed. Despite the negative factors, the USD/JPY pair, so far, has been showing some resilience below the 113.00 round figure. This warrants some caution for bearish traders and before positioning for an extension of last week's sharp pullback from a near five-year high, around mid-115.00s.

Market participants now look forward to the US economic docket, highlighting the release of the Conference Board's Consumer Confidence Index later during the early North American session. The key focus, however, will remain on Fed Chair Jerome Powell's testimony before the Senate Banking Committee. This will influence market expectations about the Fed's next policy move and produce some meaningful trading opportunities around the USD/JPY pair.

Technical levels to watch

One-month risk reversal on USD/CAD, a measure of the spread between call and put prices, dropped to the lowest levels since November 04 on Monday, per Reuters.

A call option gives the holder the right but not obligation to buy the underlying asset at a predetermined price on or before a specific date. A put option represents a right to sell. 

That said, the daily difference between them slumped to the -0.113 level, also reversing Friday’s first positive reading in five days, heading into Tuesday’s European session, per Reuters.

The options market scenario backs the USD/CAD sellers ahead of today’s Canada GDP and Fed Chair Jerome Powell’s testimony. The reason for the bearish bias could be linked to the market’s cautious optimism on Monday.

However, the latest doubts over the vaccines’ abilities to tame the South African covid variant, dubbed as Omicron, favor USD/CAD buyers.

Against this backdrop, USD/CAD prints 0.30% intraday gains around 1.2790 by the press time.

Read: Yields, Euro Stoxx 50 Futures tumble as Omicron risks escalate

According to flash data from CME Group for natural gas futures markets, open interest resumed the downtrend and shrank by nearly 1.8K contracts at the beginning of the week. On the flip side, volume went up by around 101.3K contracts, reversing the previous daily drop.

Natural Gas poised to challenge $4.70

Monday’s moderate pullback in prices of natural gas was amidst shrinking open interest, which warns against the likelihood of deeper drops in the very near term at least. In the meantime, the $4.70 mark per MMBtu still emerges as quite a decent contention area.

• USD/ZAR retreats from intraday high, stays around yearly top.
• 61.8% Fibonacci retracement limits immediate downside, July 2020 lows challenge bulls.
• RSI conditions challenge further upside but bullish trend remains intact.

USD/ZAR stays firmer around $16.20, despite the recent pullback from intraday high, amid early Tuesday morning in Europe.

In doing so, the South African currency (ZAR) remains on the back foot around the lowest levels in a year, flashed on Friday, while staying above 61.8% Fibonacci retracement (Fibo.) level of August 2020 to June 2021 fall, around $16.10.

However, the overbought RSI line hints at the quote’s pullback move from a horizontal area comprising July 2020 lows, near $16.35-40.

Adding to the upside filters is the October 2020 peak of $16.75 and the $17.00 threshold.

On the contrary, the pair’s pullback below the key Fibo. level support of $16.10 will need validation from the $16.00 round figure to aim for a late November 2020 swing high near $15.70.

It should be noted that the USD/ZAR keeps the bullish trend until the quote stays above August 2021 top near $15.40.

USD/ZAR: Daily chart

Trend: Further upside expected

• US 10-year Treasury yields renew three-week low, Euro Stoxx 50 Futures slump 2.5%.
• Moderna Chief renews concerns over global vaccines’ inabilities to tame South African covid variant, Fed funds rally.
• Fed’s Powell, US CB Consumer Confidence eyed for fresh impulse.

Market’s cautious optimism for the South African coronavirus variant turned out ephemeral as risk catalysts slump heading into Tuesday’s European session.

That said, the US 10-year Treasury yields drop seven basis points (bps) to refresh the lowest levels in three weeks while the Euro Stoxx 50 Futures drop 2.70% as bears attack 4,010 level by the press time.

While checking the fresh catalysts, comments from globally renowned covid vaccine producer Moderna’s Chief Stéphane Bancel will gain major attention as markets previously cheered hopes of proper vaccines to overcome the fears from Omicron.

“The chief executive of Moderna has predicted that existing vaccines will be much less effective at tackling Omicron than earlier strains of Covid-19 and warned it would take months before pharmaceutical companies can manufacture new variant-specific jabs at scale,” said Financial Times.

Following the news, Fed funds futures rally while the MSCI emerging markets index falls about 0.8% to a one-year low.

Earlier in the day, investors cheered US President Joe Biden’s rejection of the need for lockdowns and comments from Fed Chairman Jerome Powell and US Treasury Secretary Janet Yellen. Powell stayed intact on his inflation view, offering notable support to risk appetite whereas Yellen pushes Congress to overcome the US debt limit deadlock, as well as highlighting the strength of the US economy.

Moving on, preliminary readings of November’s Consumer Price Index (CPI) will precede US CB Consumer Confidence for November and covid updates, followed by Fed Chair Jerome Powell’s testimony, to direct short-term market moves.

Read: Yields, S&P 500 Futures portray cautious optimism, coronavirus variant is the key

According to FX Strategists at UOB Group, NZD/USD still risks further pullbacks in the short-term horizon.

Key Quotes

24-hour view: “We highlighted yesterday that ‘downward pressure is beginning to ease but NZD could dip below 0.6800 first before a more sustained rebound can be expected’. We added, ‘the next major support at 0.6760 is not expected to come into the picture’. Our view was not wrong as NZD dropped to 0.6788 before rebounding. The rebound has scope to extend but is likely limited to a test of 0.6855 (minor resistance is at 0.6840). Support is at 0.6805 followed by 0.6790.”

Next 1-3 weeks: “We have expected NZD to weaken since early last week. In our latest narrative from yesterday (29 Nov, spot at 0.6825), we highlighted that further NZD weakness is not ruled out but the prospect for NZD to weaken to the next major support at 0.6760 is not high. There is no change in our view for now. On the upside, a breach of 0.6895 (no change in ‘strong resistance’ level) would indicate that the weak phase has come to an end.”

CME Group’s preliminary readings for crude oil futures markets noted traders scaled back their open interest positions by more than 25K contracts on Monday, reversing five consecutive daily builds. In the same line, volume went down by around 473.5K contracts, extending the choppy activity seen as of late.

WTI looks capped by $70.00

Prices of the barrel of the WTI attempted a recovery at the beginning of the week. The bull run, however, was in tandem with diminishing open interest and volume, indicative that extra gains appear not favoured in the very near term and refocusing the attention on the downside instead. In the meantime, the key $70.00 mark per barrel continues to cap the upside, reinforced at the same time by the 200-day SMA.

FX Strategists at UOB Group suggested Cable could breach below the 1.3300 level and attempt a test of 1.3260 in the near term.

Key Quotes

24-hour view: “Yesterday, we highlighted that ‘downward pressure has eased and this coupled with oversold conditions suggest that the current movement is part of a consolidation phase’ and we expected GBP to ‘trade within a range of 1.3300/1.3365’. GBP subsequently traded between 1.3288 and 1.3357 before closing little changed at 1.3318 (-0.09%). We continue to view the current movement as part of a consolidation and expect GBP to trade between 1.3285 and 1.3360 for today.”

Next 1-3 weeks: “Our update from yesterday (29 Nov, spot at 1.3330) still stands. As highlighted, there is room for GBP to drop to 1.3260. At this stage, a sustained decline below this level is unlikely. On the upside, a break of 1.3390 (no change in ‘strong resistance’ level) would indicate that the weakness in GBP that started early last week has run its course.”

• GBP/JPY sellers attack two-month low, nears 78.6% Fibonacci retracement support.
• Bearish MACD, failures to hold 200-DMA highlight ascending trend line from July.
• Monthly resistance line, 50% Fibo. add to the upside filters.

GBP/JPY takes offers around 150.55, the lowest levels since October 04, during early Tuesday morning in Europe. In doing so, the cross-currency pair not only reverses the previous day’s corrective pullback but also braces for the biggest monthly fall since September 2020.

That said, the sellers cheer downside break of 200-DMA and 61.8% Fibonacci retracement (Fibo.) of July-October advances amid bearish MACD signals.

Hence, the latest declines are likely to last longer with the 78.6% Fibo. level near 150.50 acting as the immediate support.

Adding to the downside filters is a four-month-long support line near the 150.00 round figure, a break of which will make the quote vulnerable to test September’s low of 148.95.

Alternatively, 61.8% Fibonacci retracement level and 200-DMA, respectively near 152.50 and 153.65, restrict the short-term upside of the pair.

However, GBP/JPY bulls may not take risk of entries until witnessing a clear upside break of a descending resistance line from October 21, around 153.80 by the press time.

GBP/JPY: Daily chart

Trend: Further weakness expected

Open interest in gold futures markets resumed the downtrend and shrank by around 12.1K contracts on Monday, considering advanced figures from CME Group. Volume followed suit and dropped by around 195.5K contracts.

Gold keeps targeting the $1,800 mark

Gold prices started the week on a negative footing amidst shrinking open interest and volume. That said, a deeper pullback looks unlikely, allowing instead for a potential rebound in the very near term. That said, the precious metal still looks to retest the key barrier at $1,800 per ounce troy.

"I’m confident that those net purchases will continue throughout next year. Beyond that, I don’t know,” the European Central Bank (ECB) Vice President Luis de Guindos said in an interview with Les Echos on Tuesday.

These comments clearly suggest that a rate hike by the ECB is not on the table until the QE program ends.

Market reaction

EUR/USD is recovering ground above 1.1300 amid an extended sell-off in the US Treasury yields, as risk-aversion returns with worries over the Omicron covid variant.

In opinion of FX Strategists at UOB Group, EUR/USD is now expected to navigate within the 1.1220-1.1360 range in the next weeks.

Key Quotes

24-hour view: “EUR traded between 1.1257 and 1.1314 yesterday, relatively close to our expected sideway-trading range of 1.1260/1.1325. The underlying tone has improved somewhat and the bias is for today is tilted to the upside. That said, a clear break of 1.1325 is unlikely. Support is at 1.1275 but only a breach of 1.1260 would indicate that the current mild upward pressure has eased.”

Next 1-3 weeks: “There is no change in our view from yesterday (29 Nov, spot at 1.1290). As highlighted, EUR has moved into a consolidation phase and is likely to trade between 1.1220 and 1.1360 for now.”

• AUD/USD takes offers to refresh intraday low after posting the bearish candlestick.
• Moderna Chief’s comments offer immediate burden on the risk catalysts.
• 20-SMA and two-week-old resistance line limit short-term upside.
• Yearly low holds the key for 100-pip fall, 0.7100 adds to the downside filters.

AUD/USD sellers attack yearly bottom surrounding 0.7100 in a fresh wave of selling ahead of Tuesday’s European session. The latest fall in Aussie prices could be linked from the markets fears that the global medicine suppliers will lack strength to overcome the Omicron-led virus woes.

The market fears got boost from Moderna’s Chief Executive Stéphane Bancel. Also weighing on the risk apetite could be early-Asian prepared remarks from Fed Chair Jerome Powell who kept his reflation view intact despite citing virus woes to weigh price pressure and employment.

In doing so, the Aussie pair justifies the bearish Doji candlestick on the four-hour chart below a fortnight-old resistance line and 20-SMA. Adding to the bearish bias is the MACD line’s failure to extend previous recovery moves.

While Doji and the stated upside hurdles direct AUD/USD prices to the south, the yearly low near 0.7105 and the 0.7100 challenges the pair sellers.

However, a clear downside break of the 0.7000 mark will open a door for a 100-pip fall towards a horizontal area comprising multiple levels marked since June 2020.

Alternatively, 20-SMA and the stated immediate support line restricts corrective pullback below 0.7155, a break of which will direct the AUD/USD buyers towards the 0.7200 threshold.

To sum up, bears are likely to keep the reins ahead of US CB Consumer Confidence for November and covid updates, followed by Fed Chair Jerome Powell’s testimony.

AUD/USD: Four-hour chart

Trend: Further weakness expected

• GBP/USD attempts a bounce but not out of the woods yet.
• USD drop offers some support but Brexit risks continue to lurk.
• Recovery efforts appear short-lived amid bearish RSI.

GBP/USD is making a minor recovery attempt above 1.3300 on Tuesday, as the US dollar turns south again in tandem with the Treasury yields. Easing Omicron covid variant fears lift the market mood as well as the pound.

However, the UK-France stand-off on the post-Brexit fishing rights and impending deal over the Northern Ireland (NI) protocol will continue to haunt the GBP market.

Meanwhile, the covid woes-led broader market sentiment will continue to impact high beta currencies such as the pound. Fed Chair Jerome Powell’s testimony also remains in focus.

Looking at GBP/USD’s daily chart, the bearish bias remains well in the book, especially after the previous week’s downside breakout from the falling trendline support at 1.3387.

The recent consolidative mode only suggests that the bears are gathering strength before the next push lower.

The 14-day Relative Strength Index (RSI) also hovers below the midline, backing the odds of the additional decline.

On selling resurgence, the eleven-month lows of 1.3278 will get retested should the 1.3300 level give way once again.

GBP/USD: Daily chart

Alternatively, acceptance above the falling trendline support now resistance at 1.3331 is critical to unleashing further recovery gains.

The next upside target for GBP bulls is then seen at Monday’s high of 1.3363, above which the 1.3400 level will come into the picture.

GBP/USD: Additional levels to consider

Market sentiment sours after the Financial Times (FT) shares comments from Moderna’s Chief Executive Stéphane Bancel suggesting further hardships the South African variant of the coronavirus, dubbed as Omicron.

Key quotes

FX implications

Following that news, yields refresh intraday low and the AUD/USD drops further towards 0.7100. The same underpins the US dollar’s safe-haven demand and weighs on the EUR/USD prices.

Read: EUR/USD teases 1.1300 as yields weigh on USD, Eurozone inflation, Fed’s Powell eyed

• EUR/USD prints mild gains amid sluggish USD, cautious ahead of key data/events.
• Receding fears of Omicron join Powell’s prepared remarks to down bond coupons.
• ECB policymakers shrug off rate hike concerns, highlight today's inflation numbers.
• Fed Chair Powell’s Testimony, US CB Consumer Confidence is important too.

EUR/USD retreats from an intraday high of 1.1305 heading into Tuesday’s European session. Even so, the currency major pair prints 0.15% daily gains by the press time, reversing the previous day’s losses, as cautious optimism in the markets reduces the US dollar’s safe-haven demand.

US President Biden shrugged off the need for lockdowns while Fed Chair Jerome Powell stayed intact on his inflation view, offering notable support to risk appetite. Following that, sentiment improves as US Treasury Secretary Janet Yellen pushes Congress to overcome the US debt limit deadlock, as well as highlighting the strength of the US economy.

On the same line were global medicine suppliers’ optimism to have the vaccines for the strain and policymakers’ confidence to take quick measures to tame the Omicron breakout. Additionally keeping the market players hopeful is the current conditions of the global economies versus the initial days of the pandemic.

Amid these plays, the US Treasury yields remain pressured with the headline 10-year bond coupon down three basis points (bps) to 1.50% whereas S&P 500 Futures print mild gains at the latest.

It should be noted, however, that the comments from European Central Bank (ECB) governing council member Pablo Hernandez de Cos and Vice President Luis de Guindos keep EUR/USD buyers on the sidelines. ECB’s de Cos said, “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.” On the contrary, de Guindos said, “New coronavirus variants and spread of COVID-19 cases will increase uncertainty.” Furthermore, ECB  executive board member Isabel Schnabel said on Monday, “We think that inflation peak has been reached in November.”

Hence, today’s preliminary reading of the Eurozone Consumer Price Index (CPI) for November, expected 3.7% versus 4.1% prior, will be important to watch. It’s worth pointing out that German inflation figures jumped to a record high of 6.0% the previous day.

In addition to the Eurozone CPI, US CB Consumer Confidence for November and covid updates, followed by Fed Chair Jerome Powell’s testimony, will also be crucial to watch for fresh impulse.

Read: Conference Board Consumer Confidence Preview: Spending immunity

Technical analysis

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. 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.

• USD/INR snaps two-day uptrend, reverses from monthly high.
• India reports lowest daily jump in coronavirus cases since May.
• September GDP is expected to ease from 20.1% prior, RBI rate hike stays on the cards.
• Fed’s Powell, US data and covid updates are important too.

USD/INR refreshes intraday low to 74.91, down 0.27% on a day while extending the pullback from the monthly top during early Tuesday.

In doing so, the Indian rupee (INR) pair portrays the market’s cautious optimism ahead of the fiscal Q2 GDP of India, as well as receding fears of Omnicron which earlier triggered the market’s rush to risk safety. That said, India’s GDP is expected to ease from 20.1% prior to 8.4%.

“Fast-moving indicators including exports, electricity generation, rail freight and bank deposits showed improving signs of growth momentum in October while vehicle sales, fuel sales and tax collection showed slower growth,” said Reuters ahead of the release.

It should be observed that firmer inflation pushes the Reserve Bank of India (RBI) towards a rate hike but the latest covid outbreak may stop the national bank from doing so if today’s GDP softens more than expected.

Elsewhere, India’s daily covid cases rose 6,990 versus 8,309, per the latest figures shared by Reuters. This marks the Asian nation’s lowest daily count since May 28, 2020.

On a broader front, market sentiment improves amid receding fears from the South African variant of the coronavirus. The reason could be linked to the global policymakers’ rejection of the need for total lockdowns and comparatively better economic conditions than the early pandemic days.

While portraying the mood, the US Treasury yields remain pressured with the headline 10-year bond coupon down three basis points (bps) to 1.50% whereas S&P 500 Futures print mild gains at the latest.

Moving on, India’s Q2 GDP will offer immediate direction to USD/INR prices while US CB Consumer Confidence for November and covid updates, followed by Fed Chair Jerome Powell’s testimony, will be important to watch for fresh impulse.

Technical analysis

RSI retreat hints at further pullback from the monthly high surrounding 75.20 towards multiple supports around 74.60-58.

• Asian equities grind higher as yields remain pressured despite easing covid woes.
• Fed’s Powell, US President Joe Biden joins Treasury Secretary Yellen to shrug off market fears.
• China PMI jumps above 50.00 for the first time in three months, Aussie economics came in weaker.
• India GDP, Fedspeak and coronavirus updates are the key.

Asian shares trade mostly higher during early Tuesday, paring the Omicron-linked losses as policymakers reject chatters of economic setback while data from China impressed buyers. That said, MSCI’s index of Asia-Pacific shares outside Japan print 0.25% intraday loss but Japan’s Nikkei 225 rises 0.75% heading into the European session.

US President Biden shrugged off the need for lockdowns while Fed Chair Jerome Powell stayed intact on his inflation view and US Treasury Secretary Janet Yellen pushes Congress to overcome the US debt limit deadlock, as well as highlighting the strength of the US economy. Additionally, global medicine supplies’ optimism to have the vaccines for the strain and policymakers’ ability to take quick measures to tame the Omicron breakout favor the bulls. Additionally keeping the market players hopeful is the current conditions of the global economies versus the initial days of the pandemic.

Elsewhere, China’s headline NBS Manufacturing PMI jumped back to expansion territory with above 50.0 numbers for the first time in three months but Non-Manufacturing PMI eased below market consensus and prior readouts during November. Following the data release, China says, “Economic mood is improving as 3 PMIs show expansion.”

While this helps China data, Aussie stocks have an additional positive in the form of downside housing numbers that erode talks of the Reserve Bank of Australia’s (RBA) rate hikes. It’s worth noting that New Zealand’s NZX 50 leads the region’s gainers as tighter border controls and faster covid vaccinations keep Auckland optimistic while the Reserve Bank of New Zealand Chief Economist and Head of Economics Yuong Ha rejects concerns of using bond holding for monetary purposes.

India’s BSE Sensex also rises above 1.0% amid hopes of firmer Q3 GDP and the lowest daily jump in coronavirus cases at home since May 2020.

On the other hand, South Korea’s KOSPI drop over 1.0% on mixed data whereas Hong Kong’s Hang Seng joins the league with fears of further Omicron cases at home.

Against this backdrop, US Treasury yields remain pressured with the headline 10-year bond coupon down three basis points (bps) to 1.50% at the latest. Though, S&P 500 Futures print mild gains at the latest.

Looking forward, US CB Consumer Confidence for November and covid updates will also be important for markets ahead of Friday’s jobs report.

Read: Yields, S&P 500 Futures portray cautious optimism, coronavirus variant is the key

• WTI pares intraday gains, holds onto Monday’s recovery moves.
• 50-HMA, triangle resistance restricts immediate upside, RSI retreat teases sellers.
• Bulls need validation from $74.00 even if after crossing triangle’s resistance.

WTI crude oil retreats to $70.40 during a two-day rebound amid early Tuesday. While a two-day-old symmetrical triangle restricts the black gold’s recent moves, RSI pullback and addition of the 50-HMA to upside hurdle keep sellers hopeful.

However, a clear downside break of the stated triangle’s support line, near $69.20 by the press time, becomes necessary for the oil sellers to retake controls.

Following that, Friday’s low near $68.30 will gain the market’s attention before directing WTI bears to September’s low near $67.00 and July’s bottom close to $65.00.

On the flip side, the commodity’s advances will have a tough nut to crack around $72.00, comprising the triangle’s resistance line and 50-HMA.

Even if the quote manages to cross the $72.00, late Friday’s swing high near $74.00 may offer an additional filter before assuring the oil’s run-up towards $77.60, encompassing November 25 upside.

WTI: Hourly chart

Trend: Pullback expected

The new Omicron covid variant-led concerns are unlikely to deter the Reserve Bank of India (RBI) from hiking key rates by 20 bps next week, Barclays Chief India Economist Rahul Bajoria said in his latest note published Tuesday.

Key quotes

“Despite the emergence of a new COVID variant, we believe the RBI is likely to acknowledge the positive sentiment prevailing in India by raising its growth forecasts upwards during next week's policy review, reflecting the strong pickup in aggregate demand,”

“We believe gradualism will remain the preferred approach, especially in light of the emergence of a new COVID variant. While the new Omicron strain is unlikely to shift macro assumptions, it may add downside risks to baseline forecasts.”

Analysts at Goldman Sachs offer their bearish outlook on AUD/CAD, citing “our recommendation to short AUD/CAD is intended to benefit from the divergence between the RBA and BOC.”

Key quotes

“We see the RBA on hold until late 2023 but expect the BOC to hike this coming January.”

“As well as from divergence in the countries' export prices, our commodity strategists forecast upside to crude oil but anticipate a sustained period of weakness for iron ore.”

“In addition to these bottom-up considerations, we also think this trade is favorably exposed to certain top-down factors currently driving macro markets.”

• USD/CAD consolidates Monday’s pullback from a two-month top.
• The corrective decline appears limited after a bull cross confirmed on the 1D chart.
• Daily RSI edges lower but remains well above the midline.

USD/CAD is posting small losses while trading below 1.2750, as the sellers take a breather after a solid rebound in the US dollar and WTI prices seen on Monday.

The latest drop in the major could be attributed to the renewed weakness in the US dollar across the board, as the markets remain optimistic about the less severe effects of the Omicron covid variant.

Investors look forward to Fed Chair Jerome Powell’s testimony on the CARES Act later on Tuesday, especially after his prepared remarks underscored risks to the economy from the new covid strain.

Also, in focus remains the Canadian GDP data for fresh trading impetus amid ongoing OPEC+ headlines.

Looking at USD/CAD’s daily chart, the bulls are fighting to regain lost ground, looking to take advantage of the bull cross confirmed earlier this Tuesday.

The 14-day Relative Strength Index (RSI) is slightly lower but holds comfortably above the midline, suggesting that buying resurgence could be in the offing.

Bulls will need to cross the daily highs of 1.2766 to seek additional recovery towards the 1.2800 level.

USD/CAD: Daily chart

On the downside, Monday’s low of 1.2721 will offer immediate support to the bullish traders, below which a drop towards the 1.2650 psychological level cannot be ruled out, where Friday’s low coincides.

Further south, bears will challenge the bullish commitments at the 1.2600 mark.

USD/CAD: Additional levels

• Gold picks up bids to refresh intraday high, holds onto weekly trading range.
• Risk appetite improves as market players reassess covid variant fears.
• Policymakers, experts reject concerns over the need for major lockdowns, readiness to have vaccines sooner.
• US Consumer Confidence, Fed’s Powell eyed ahead of Friday’s NFP.

Gold (XAU/USD) refreshes intraday high to $1,788 during early Tuesday, stays within the short-term trading range above $1,780.

The pullback in the US Treasury yields and firmer equities favor gold buyers to bounce off an immediate key support line. However, looming concerns over the South African variant of the coronavirus, dubbed as omicron, joins anxiety ahead of the week’s key events to restrict the commodity’s moves.

While portraying the mood, the US 10-year Treasury yield drop 1.8 basis points (bps) to 1.51% while the S&P 500 Futures rise 0.30% by the press time. It’s worth noting that shares in Asia-Pacific markets print gains at the latest.

China’s first in three-month above 50 NBS Manufacturing PMI reading for November offers the immediate positive to the market’s mood. Before that, US President Joe Biden’s rejection of lockdown’s need and Fed Chair Jerome Powell’s acceptance of the covid challenges for inflation and jobs report while also backing reflation fears favored market sentiment. Further, US Treasury Secretary Janet Yellen tried placating market pessimism while pushing Congress to overcome the US debt limit deadlock, as well as highlighting the strength of the US economy.

Furthermore, global medicine supplies’ optimism to have the vaccines for the strain and policymakers’ ability to take quick measures to tame the Omicron breakout favor the bulls. Additionally keeping the market players hopeful is the current conditions of the global economies versus the initial days of the pandemic.

Meanwhile, the updates from the US military posture highlights Sino-American tussles and exert downside pressure on the risk appetite. Further, the market’s anxiety ahead of the week’s key data, like Fed Chair Jerome Powell’s testimony and jobs report for November, also probe the risk-on mood.

Other than the testimonies, for which the written scripts are already out, US CB Consumer Confidence for November and covid updates will also be important for markets ahead of Friday’s jobs report.

Overall, gold prices are likely to grind lower amid static hopes of the Fed’s tightening due to the reflation fears.

Read: Omicron covid update: Wait and see, meanwhile, traders buy the dip

Technical analysis

Gold prices grind between a five-week-old horizontal area and an ascending support line from late September. However, steady RSI and receding bullish bias of the MACD signals that the sellers are bracing for entries.

Even so, a clear downside break of the stated support line, around $1,785 by the press time, won’t be enough as multiple levels around $1,780 also challenge gold bears.

Though a clear downside past $1,780 will make the quote vulnerable to test the monthly low near $1,753, with $1,771-70 acting as an intermediate halt.

Meanwhile, sustained run-up beyond $1,815 will get a conviction on crossing November 09 swing high near $1,833.

Following that, gold can quickly target the $1,850 hurdle whereas the $1,870 and the monthly peak of $1,877 could entertain the bulls afterward.

Gold: Four-hour chart

Trend: Further weakness expected

• Asian share markets are trading in positive territory following a recovery on Wall Street. 
• Markets take solace in cautious optimism over the new covid variant. 

Nations are looking to take precautionary measures and speed up the vaccination processes while monitoring to see whether it emerges that the new coronavirus variant, Omicron, is no more dangerous than the Delta variant. Investors are of the mind that markets are cheap at this juncture following the knee-jerk reaction at the end of last week.

Asian share markets are trading in positive territory on Tuesday due to the cautiously optimistic outlook on the new Omicron variant following comments made by global officials that have eased the angst. 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.

Additionally, US President Joe Biden that new lockdowns as a result of the variant were off the table for now. Covid symptoms linked to the new omicron variant have also been described as “extremely mild” by the South African doctor who first raised the alarm over the new strain. Dr. Angelique Coetzee told the BBC on Sunday that the patients seen so far have had “extremely mild symptoms.” This equated to a relief rally on Wall Street and made for a brighter lead for Asian markets. 

MSCI's broadest index of Asia-Pacific shares outside Japan was 0.52% higher on Tuesday early in the day while, in Australia, the S&P/ASX200 .AXJO was up 1.15%. Japan's Nikkei NI225 was trading 1.2% higher early in the session also. However, Hong Kong's Hang Seng Index HSI underperformed, down 0.25% while China's blue-chip CSI 300 index 399300 was up 0.13%. 

Meanwhile, the WHO has said it will take weeks to understand how the variant may affect diagnostics, therapeutics and vaccines. As for cases found around the world, CNN published the following within the last few hours:  

Australia: 2 cases.

Austria: 1 case.

Belgium: 1 case.

Botswana: 19 cases.

Canada: 3 cases.

Czech Republic: 1 case.

Denmark: 2 cases.

Germany: 3 cases.

Hong Kong: 3 cases.

Israel: 1 case.

Italy: 1 case.

Netherlands: 13 cases.

Portugal: 13 cases.

South Africa: 77 cases.

Spain: 1 case.

United Kingdom: 9 cases.

Forex markets in a correction

Traders are buying the dip as solace is found in the optimism so far and we are seeing corrections in risk-related FX such as in the Aussie and yen crosses:

AUD/USD is making headway towards a 38.2% Fibonacci retracement near 0.7160.

• US 10-year Treasury yields struggle to keep previous day’s rebound, S&P 500 futures print mild gains.
• Global policymakers placate market fears over the South African covid variant, Fed’s Powell, US Treasury Secretary Yellen eyed.
• Indecision over severity of virus strain, comparatively better economies favor optimists.

Having witnessed an upbeat start to the week, market sentiment dwindles during early Tuesday as traders await more developments on the coronavirus front, as well as the week’s key event. Showcasing the mixed sentiment are the sluggish US Treasury yields, in contrast to mildly bid stock futures.

That said, the benchmark US 10-year Treasury yield drops one basis points (bps) to 1.52% while the S&P 500 Futures rise 0.40% by the press time. It’s worth noting that shares in Asia-Pacific markets print gains at the latest.

Among the positives, China’s first in three-month above 50 NBS Manufacturing PMI reading for November gains major attention. On the same line is US President Joe Biden’s rejection of lockdown’s need and Fed Chair Jerome Powell’s acceptance of the covid challenges for inflation and jobs report while also backing reflation fears. Further, US Treasury Secretary Janet 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.

Alternatively, the updates from the US military posture highlights Sino-American tussles and exert downside pressure on the risk appetite. Further, the market’s anxiety ahead of the week’s key data, like Fed Chair Jerome Powell’s testimony and jobs report for November, also probe the risk-on mood.

Above all, global medicine supplies’ optimism to have the vaccines for the strain and policymakers’ ability to take quick measures to tame the Omicron breakout favor the bulls. Additionally keeps the market players hopeful is the current conditions of the global economies versus the initial days of the pandemic.

Moving on, US CB Consumer Confidence for November and covid updates will be important for the traders ahead of testimonies from Fed Chair Powell and Yellen, not to forget Friday’s US Nonfarm Payrolls.

Read: Conference Board Consumer Confidence Preview: Spending immunity

Following his telephonic conversation with US Treasury Secretary Janet Yellen, Japan’s Finance Minister Shunichi Suzuki said that he had no discussion on the fx rates with Yellen.

Additional quotes

“Yellen and I exchanged views on co-operation to resolve global issues.”

“Yellen explained on inflation in the context of the US domestic economic situation.”

Market reaction

USD/JPY is holding onto the rebound around 113.75, up 0.19% on the day, as of writing.

• NZD/USD struggles to defend Monday’s bounce off crucial support zone.
• China’s NBS Manufacturing PMI jumps back into expansion territory but Non-Manufacturing PMI eases in November.
• Sustained trading below 17-month-old trend line, bearish MACD signals favor sellers.
• Bulls need validation from 50% Fibonacci retracement, March’s low.

NZD/USD prints mild gains around 0.6820 amid early Tuesday, following the rebound from important support the previous day.

Pair’s recent gains could be linked to cautious optimism in the market and mixed data from the largest customer China. That said, the headline NBS Manufacturing PMI jumped back to expansion territory with above 50.0 numbers for the first time in three months but Non-Manufacturing PMI eased below market consensus and prior readouts during November. Following the data release, China says, “Economic mood is improving as 3 PMIs show expansion.”

Read: China's November official Manufacturing PMI back in expansion

Technically, bears cheer a sustained trading below the 17-month-old support line, now resistance around 0.6900. However, the 61.8% Fibonacci retracement (Fibo.) level of June 2020 to February 2021 upside and multiple levels marked during September and November 2020 provide a tough nut to crack for the bears around 0.6800-6790 area.

Should the kiwi sellers successfully conquer 0.6790 support, October 2020 peak surrounding 0.6725 should return to the charts.

Alternatively, September 2021 bottom close to 0.6860 may initially probe the pair’s corrective pullback before the aforementioned support-turned-resistance line around 0.6900.

Adding to the upside filters is the 50% Fibo. and March’s low, respectively near 0.6925 and 0.6945.

NZD/USD: Daily chart

Trend: Further weakness expected

In recent trade today, the People’s Bank of China (PBOC) set the yuan (CNY) at 6.3794 vs the estimated 6.3793 and the previous 6.3872.

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.

• AUD/NZD is perking up in Tokyo and embarking on a break of key structure.
• AUD/USD rising towards channel top, 0.7180 eyed. 

AUD/NZD is attempting to move in on the 1.15 figure in Asia as the Aussie recovers following a correction of the knee-jerk reaction to the news of the new variant of the coronavirus, Omicron. AUD/USD is embarking on a 36.2% Fibonacci retracement which is underpinning the cross to the tp side of the accumulation as follows:

AUD/USD daily chart

AUD/NZD hourly chart 

AUD/NZD's hourly outlook is for a test of the hourly resistance once the first layer has broken. The immediate resistance at 1.0480 would be expected to act as a support on a restest of the area. If this holds as support, then bulls would be expected to move in further for a test of 1.05 the figure in the coming seasons. 

• AUD/USD stays sidelined around intraday high following China data release.
• China NBS Manufacturing PMI improves but Non-Manufacturing PMI eases in November.
• Market sentiment improves as Omicron fears ebb, policymakers stay cautiously optimistic.
• US data, testimonies from Fed’s Powell and Treasury Secretary Yellen will join coronavirus update to direct immediate moves.

AUD/USD struggles to cheer activity data from the key customer China during early Tuesday, taking rounds to 0.7150 by the press time. Even so, the risk barometer pair prints mild gains amid receding fears from the South African covid strain, dubbed as Omicron.

China’s headline NBS Manufacturing PMI jumped back to expansion territory with above 50.0 numbers for the first time in three months but Non-Manufacturing PMI eased below market consensus and prior readouts during November. Following the data release, China says, “Economic mood is improving as 3 PMIs show expansion.”

Read: China's November official Manufacturing PMI back in expansion

It’s worth noting that the recent recovery in the US Treasury yields and firmer Asia-Pacific stocks, together with the US S&P 500 Futures, also underpin the AUD/USD strength.

The reason could be linked to US President Joe Biden’s rejection of lockdown’s need and from Fed Chair Jerome Powell who accepts covid challenges for inflation and jobs report but backs inflation pressure. Further, US Treasury Secretary Janet 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.

On the contrary, news that the US global military posture highlighted the need to work with allies and partners to beef up deterrence against potential Chinese aggression and North Korean threats, per Kyodo News, adds to the US dollar’s safe-haven demand and challenge AUD/USD buyers. Furthermore, the market’s anxiety ahead of the week’s key data, like Fed Chair Jerome Powell’s testimony and jobs report for November, also probe the Aussie pair’s upside moves.

Other than the catalysts stated above, US CB Consumer Confidence for November and covid updates will also be important for the AUD/USD traders. Recently, ABC News confirms the fifth case of the covid variant in New South Wales.

Read: Conference Board Consumer Confidence Preview: Spending immunity

Technical analysis

AUD/USD wobbles around the yearly support line, inside the immediate rising channel for the last two days. Adding to the bearish bias is the descending RSI line and retreat of the bullish MACD line, not to forget sustained trading below 50-HMA and a weekly resistance trend line. That said, selling pressure could escalate on the clear downside break of the immediate channel, supported around 0.7120.

China's November official Manufacturing PMI arrived at 50.1 (Reuters poll 49.6) vs 49.2 in October. The Non-Manufacturing PMI for the same month arrived at 52.3 vs.53 expected and 52.4 prior.

AUD/USD is attempting to correct higher in general and this data underpins the short term bullish bias. 

On the hourly chart, the price is testing into resistance while the daily chart maps out the retracement path towards the 38.2% ratio as follows:

Why it matters to traders?

The monthly Manufacturing PMI is released by China Federation of Logistics and Purchasing (CFLP) on the last day of every month. The official PMI is released before the Caixin Manufacturing PMI, which makes it even more of a leading indicator, highlighting the health of the manufacturing sector, considered as the backbone of the Chinese economy. The data is of high relevance for the financial markets throughout several asset classes, given China’s influence on the global economy.

• DXY struggles to extend Monday’s rebound, stays below two-week-old channel.
• Bearish MACD signals direct sellers towards 100-SMA but monthly support line will challenge the following downside.
• Weekly falling trend line offers immediate resistance, 97.00 is the key.

US Dollar Index (DXY) remains pressured towards 96.00, around 96.17 during Tuesday’s Asian session. The greenback gauge consolidated Friday’s heavy losses the previous day but failed to negate the downside break of a two-week-old ascending trend channel.

In addition to the confirmation of the bearish chart pattern, downbeat MACD signals and sustained trading below the weekly resistance line also weigh on the US Dollar Index.

That said, the quote drops towards the 100-SMA level of 95.57 by the press time but any further weakness will be challenged by an ascending support line from late October, around 95.00.

Should DXY bears keep reins past 95.00, the monthly low near 93.80 will be on their radars.

Alternatively, the stated weekly resistance line and the channel’s support, around 96.50-55, guards the quote’s immediate upside.

Following that, a run-up towards the 97.00 key hurdle can’t be ruled out. However, the stated channel’s resistance line near 97.40 could test the DXY bulls afterward.

DXY: Four-hour chart

Trend: Further weakness expected

• USD/JPY extends Monday’s rebound from three-week low, refreshing intraday low at the latest.
• Yields recovery as global leaders portray cautious optimism, shrugs off Friday’s haphazard move.
• Mixed data from Japan versus firmer US numbers and Fedspeak underpin bullish bias.
• US CB Consumer Confidence, Testimonies of Fed’s Powell and US Treasury Secretary Yellen will be crucial to watch.

USD/JPY stays on the front foot for the second consecutive day, up 0.16% intraday around 113.85 as Tokyo opens for Tuesday.

The yen pair cheers recovery in the US Treasury yields and easing fears of the South African covid variant to stretch the previous day’s bounce off the early November lows, consolidating Friday’s heavy losses. Adding to the upside could be the mixed data from Japan, versus comparatively firmer US economics. However, the bulls aren’t sure of further advances as mixed concerns over the Fed’s next move and anxiety ahead of the week’s key events probe the quote’s latest advances.

Japan’s Preliminary Industrial Production for October eased below 1.8% market consensus but recovered from -5.4% prior to +1.1% MoM level. On the contrary, the Unemployment Rate eased to 2.7% from 2.8% forecast and prior whereas the Jobs/Applicants ratio dropped below 1.17 expectations and 1.16 previous readouts to 1.15 in October.

Alternatively, the US Pending Home Sales jumped 7.5% MoM in October versus 1.0% forecast and -2.45 prior reading.

It’s worth noting that the emergency meeting of the Group of Seven (G7) leaders showed the world leaders’ readiness to combat the virus woes in a joint effort but shared no major details. “In a joint statement released after the online gathering, convened under Britain's current presidency of the group, the G-7 ministers ‘recognized the strategic relevance of ensuring access to vaccines,’ following through on their donation commitments and ‘tackling vaccine misinformation, as well as supporting research and development,’” per Kyodo News.

It’s worth noting that Japan’s banning of international flights from South Africa and surrounding countries join US President Joe Biden’s cautious optimism to favor the USD/JPY buyers. On the same line were comments from Fed Chair Jerome Powell who accepts covid challenges for inflation and jobs report but backs inflation pressure. Further, US Treasury Secretary Janet 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.

Additionally, news that the US global military posture highlighted the need to work with allies and partners to beef up deterrence against potential Chinese aggression and North Korean threats, per Kyodo News, adds to the US dollar’s safe-haven demand and favor USD/JPY buyers.

Amid these plays, US 10-year Treasury yields recover above 1.51% whereas the S&P 500 Futures and Japan’s Nikkei post mild gains by the press time.

Looking forward, US CB Consumer Confidence for November will precede Testimonies from Fed’s Powell and Treasury’s Yellen to direct short-term USD/JPY moves. However, covid updates will be the key ahead of Friday’s US jobs report.

Technical analysis

A successful recovery from the 50-DMA, around 113.25 by the press time, keeps USD/JPY buyers hopeful to overcome the immediate hurdle, namely the 21-DMA level near 114.10. Though, multiple stops around the 115.00 threshold will challenge the pair’s upside afterward.

• GBP/USD is consolidating and scraping along the bottom of its current cycle range.
• The coronavirus variant remains a concern but traders are buying the dip in the absence of fresh news.

Sterling has recovered from the territories of an 11-month low as traders backed risk-related investments on the back of encouraging words from global officials over the discovery of the Omicron coronavirus variant. GBP/USD printed 1.3287 the low overnight but has since found lots footing again in the 1.3310/20 region where it currently trades in the Tokyo open.

A semblance of calm 

A semblance of calm returned on world markets as it would seem that the severity of the Omicron variant may not be as bad as what was first feared. The variant was first recorded in South Africa last week, triggering a wave of panic among nations and forcing them to tighten border controls. British health authorities, however, have yet to announce any major increase in COVID restrictions.

Additionally, world leaders are sounding optimistic that they can deal variant. 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.  Also, Moderna added to the positive sentiment by predicting it would have a modified vaccine ready by early 2022.

Eyes on central banks

The greenback has benefited in the last few weeks from a hawkish stance by Federal Reserve policymakers in the wake of strong US data, while the pound is ebbing and flowing around the ever-changing Bank of England sentiment. However, the outlook could change for both the Fed and BoE with the emergence of the Omicron coronavirus variant. It is still early days within this two-year pandemic. Markets are pricing in around 8 bps of an increase in interest rates by the Bank of England on Dec. 16. That has fallen from more than 12 bps at the start of last week.