The new COVID-19 variant concerns, shift the Forex market firmly into the risk-off phase
|The emergence of a potentially more contagious virus has shaken the markets once again. Stocks have been hit with a 3% correction. Oil prices continue to slide. The Currency markets have not escaped the panic. Take a look and the momentum meter chart below. This tells a telling picture of ‘risk-off. Note that all of the currencies that are positioned below the center line, except for the AUD perhaps, are from those economies that were more hawkish in their approach to the interest rate cycle. The US has already begun tapering. The timing of the next rate hike has been widely discussed with many analysts predicting the first move as early as mid-2022. The Canadians have begun their taper cycle. The UK was on the brink of a hike next month. The RBNX has already hiked.
Now with the prospect of another virus out brake and further lockdowns, traders are becoming less optimistic about the pace of the future hikes. The US 10 year yields have dumped 27 basis points (16%) and the dollars has followed. The main beneficiaries have been the low-yielding, protective currencies from those economies where the central banks have remained far more dovish. "The Lady is not for Tapering"- Lagarde.
Markets never like uncertainty. The scientific evidence on this new variant is still a week away at least. More cases will emerge, more uncertainty awaits. As a trend follower, I have to follow the charts. So I am still selling the high beta currencies and buying the safe havens. The clue is on the momentum meter. I will be remaining nimble. If we see some good news on the virus in the coming days, the reversals will be sharp and brutal. So I won't be shy of taking profits withs trend.
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