Omicron: Risk appetite, stocks, yields, dollar bloc, EMFX tumble

JPY, CHF Soar, AUD, CAD Slump, DXY Falls, EUR, GBP Rally

Summary: A darker shade of black emerged on Friday after the new Covid variant, Omicron which was first detected in South Africa, spread around the world on Sunday. Cases of the new variant were detected in Italy, Germany, the Netherlands, Britain, Denmark, Belgium, Botswana, Israel, Hong Kong, and Australia. A wave of travel bans on southern Africa from many countries saw risk appetite, and financial markets dive.

The Japanese Yen and Swiss Franc soared against the Greenback, outperforming FX. USD/JPY tumbled to 113.35 against its 115.35 opening on Friday while USD/CHF plunged 1.7% to 0.9245 (0.9357). On the other side of the spectrum, the Aussie, Canadian Dollar slumped, and Emerging Market currencies tumbled. The Australian Dollar opened in early Asia at 0.7120, down 0.97% from 0.7190 Friday. New Zealand’s Kiwi was trading at 0.6820 (0.6860 Friday). In the EMFX space, the USD/CNH (Dollar-Offshore Chinese Yuan) pair rose to 6.3980 (6.3880). The USD/TRY (Dollar-Turkish Lira) jumped to 12.1700 from 12.0550. Sterling rose marginally to 1.3340 from 1.3323 while the Euro soared to 1.1322 (1.1207 Friday). The Dollar Index, which measures the value of the Greenback against 6 major currencies fell 0.83% to 96.05 (96.77). In the commodity space, Oil prices fell while Gold climbed on haven demand. Brent Crude Oil prices plunged 11.35% to USD 72.90 (USD 82.25). Spot Gold rallied to USD 1,792. (USD1,788.). Global bond prices rallied while yields dropped. The benchmark US 10-year treasury note rate was last fell 16 basis points to 1.47%. Germany’s 10-year Bund yield slumped to -0.34% from -0.25%, Australia’s 10-year Treasury yield settled at 1.73% from 1.86% on Friday. Global equity prices tumbled. The DOW finished at 34,740 (35,840), a loss of 3.07% while the S&P 500 was last at 4,582 from 4,710 Friday.

Economic data releases on Friday saw Japan’s Tokyo Core CPI unchanged at 0.3%. Swiss Q3 GDP rose to 1.7% against median forecasts at 1.6% but lower than a previous 1.8%. Eurozone Private Loans rose to an annual 4.1%, matching a previous4.1%, and higher than estimates of 4.0%. Germany’s Final Q3 GDP dipped to 1.7% from 1.8%. UK CB Realised Sales rose to 39 from 30, beating forecasts at 32. There were no data releases from the US as they celebrated their Thanksgiving holiday.

• EUR/USD – The shared currency got the lift it needed from the US Dollar’s weakness, soaring 0.87% to 1.1322 from 1.1207. Speculative short Euro bets scrambled for cover on Friday after the new Covid variant, Omicron was detected in many countries, including Europe. Overnight high traded for the Euro was at 1.1336.
• USD/JPY – haven demand for the Japanese currency on Friday pushed the USD/JPY a whopping 1.67% lower to 113.35 from 115.35 on Friday. Overnight low traded for the USD/JPY was at 113.05 while the overnight peak was at 115.11.

(Source: Finlogix.com)

• GBP/USD – Sterling finished with modest gains versus the Greenback to 1.3340 from 1.3323 on Friday. Unlike the Euro, the British Pound failed to make much headway against the US Dollar. Sentiment was mixed in the British currency between the broad-based USD weakness and the discovery of a new Covid variant.
• AUD/USD – resource leader and risk associated Australian Dollar slumped against the Greenback to 0.7120 from 0.7190. Overnight, the Aussie Battler slid to a low at 0.7101 as the risk-off stance saw strong selling emerge. The discovery of Omicron which sparked the risk-off will continue to weigh on the Battler.

On the Lookout: Asian markets will keep their focus on the latest news regarding the ongoing spread of the Omicron, the new Covid variant. As more cases pop up, Asia and the world will continue their rush to learn more of this new variant. Yesterday, Britain, which currently chairs the G7 group of nations called for an emergency meeting to discuss the Covid crisis. Meantime, expect the risk-off theme to dominate early Asian trade.

Economic data releases today kick off with Japan’s Retail Sales for October (m/m f/c -1.6% from 2.7%, y/y f/c 1.1% from -0.6%). Australia releases its Q3 Company Operating Profits (f/c 2.7% from 7.1%). Europe starts off with Italian October PPI (m/m no f/c, previous was 1.6%, y/y no f/c, previous was 13.3%). Spain releases its October Flash CPI (5.5% from previous 5.4%). The UK releases its October Net Lending to Individuals report (no f/c, previous was GBP 9.8 billion – ACY Finlogix). UK October Mortgage Approvals (no f/c, previous was 72.6K). The Eurozone follows with its Final Consumer Confidence Index for November (f/c -6.8 from -4.8 – ACY Finlogix), Eurozone November Economic Sentiment (no f/c previous was 118.6). Germany follows with its November Preliminary CPI (y/y no f/c, previous was 4.5% - ACY Finlogix). Canada kicks off North American data with its Canadian Final October PPI (m/m f/c 1.2% from 1.0%, y/y no f/c, previous was 14.9%). The US rounds up today’s economic data releases with its October Pending Home Sales (m/m f/c 1% from -2.3%, y/y no f/c, previous was -8% ACY Finlogix), US Dallas Fed Manufacturing Index for November (no f/c, previous was 14.6).

Trading Perspective: Following some big moves on Friday, markets will attempt to consolidate in Asia around the ranges that were established. The risk-off theme will continue to dominate trade with the focus on fresh news regarding Omicron. As our ACY Chief Economist Clifford Bennett has been saying these past sessions “the world is not in the best of positions despite what has been said by many economists. Bennett suggests that this is going to keep going on for awhile and I agree with him. On the FX front, expect the USD Dollar to trade mostly sideways to lower against its various Rivals. Resource, risk currencies and the EMFX will trade heavy while the haven sought Japanese Yen and Swiss Franc will outperform.

• EUR/USD – The Euro, which has been grossly oversold, saw some fierce short-covering by the speculators boost the shared currency 0.87% to 1.1322 from 1.1207. Overnight high traded for the Euro was at 1.1336. Immediate resistance for today lies at 1.1340 followed by 1.1380. On the downside, immediate support can be found at 1.1285 followed by 1.1255. Look for a further choppy trade in a likely range today of 1.1255-1.1355. Preference is to sell rallies. With the new variant growing in Europe, the continent’s economy will suffer.
• USD/JPY – slip sliding away, this currency pair trades heavy, even at current levels. In early Asian trade, the USD/JPY pair currently trades at 113.15 against its 113.35 opening and Friday’s 115.35 open. Immediate support for the USD/JPY pair lies at 113.00 (overnight low traded was 113.05). The next support level is found at 112.70 followed by 112.30. Immediate resistance can be found at 113.60 followed by 114.00. We can also expect some choppy moves in this puppy with a likely range of 113.00-114.00.
• AUD/USD – The embattled Aussie Battler continues to be pounded lower weighed by risk-off sentiment, and weaker EMFX. The Aussie finished down 0.97% to 0.7120 from 0.7190 on Friday. Overnight low traded was at 0.7101. Immediate support for today lies at 0.7100 followed by 0.7070 and then 0.7040. A clean break of the 0.7040 level could see the AUD/USD break through 0.7000 and eventually to 0.6920. Immediate resistance can be found at 0.7150, 0.7180 and 0.7210. Expect the Aussie to see a volatile trading day today with its likely range between 0.7080-0.7180. Trade the range, be nimble and go with the flow.
• GBP/USD – Sterling managed to finish with marginal gains versus the Greenback, closing at 1.3340 against 1.3325 on Friday. The market’s risk averse stance kept the British currency from a strong performance against the Greenback and other rivals. Immediate resistance on the day lies at 1.3360 (overnight high). The next resistance level is found at 1.3400. Immediate support lies at 1.3300 and 1.3270 (overnight low traded was 1.3264). Look for a likely trading range today of 1.3260-1.3360. Preference is to sell rallies.