Risk-sensitive currencies recover as Omicron worries subside
10:28, 29 November 2021
After Friday’s wave of risk-off moves across markets, most risk-sensitive currencies moved higher on Monday as investors calibrated the economic risks associated with the new Covid-19 ‘Omicron’ variant.
According to reports, the Omicron variant shows an exceptionally high number of mutations, although the extent of the contagion, mortality and resistance to vaccines is as yet unknown.
Covid and crude: how currencies are reacting
The rally came to a halt on the DXY index, which measures the US dollar’s performance versus a basket of six currencies, as investors lowered their rate-hike forecasts because of fears the new variation might impede the global recovery effort. The DXY was mostly unchanged (+0.09%) on the day as at 10:30 GMT.
Widespread market concern spurred gains in the Japanese yen (JPY) and Swiss franc (CHF) on Friday, but these two classic safe-haven currencies are losing momentum today. The USD/JPY and USD/CHF trading pairs were both 0.1% higher on Monday.
The EUR/USD pair was 0.2% lower to 1.1291, after rebounding nearly 1% on Friday, while the British pound edged up, with GBP/USD trading at 1.335 (+0.2%).
After suffering big losses as WTI crude futures sunk nearly 12% on Friday, oil-linked currencies are showing timid signs of rebound today. Both the Canadian dollar (CAD) and the Norwegian krone (NOK) were 0.4% higher against the US dollar as oil prices rose back above $70 per barrel.
The Australian dollar (AUD) was one of the outperformers of the day, with the AUD/USD pair up 0.5% to 0.715.
Elsewhere, emerging market (EM) currencies opened higher after Friday’s huge sell-off, with the South African rand (ZAR) up 1% and the Russian ruble (RUB) up 0.5%, while the Turkish lira (TRY) continues to trade disconnected from global market sentiment. Currently, the USD/TRY pair is up nearly 2% today.
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Forex daily matrix – 29 November 2021
Forex daily matrix heatmap as of 29 November 2021, 10:30 GMT – Credit: Capital.comUS dollar
The US Dollar Index (DXY) was last at 96.13, up 0.1% on the day.
DXY fell by 0.7% on Friday, as market participants cut their expectations for rate hikes in 2022 on fears the new variant might slow down the economic recovery. A high degree of volatility has been also observed in the Treasury market. The two-year yield and the 10-year yield both dropped by 10 points to 0.54% and 1.54%, respectively.
According to the CME FedWatch Tool, the probability for a rate hike in May 2022 has decreased to 40.0% from 54% on Thursday.
Today, a handful of Federal Reserve (the Fed) members will be in the news. Fed chairman Jerome Powell will deliver the opening comments at the ‘Introducing the New York Innovation Center’ event, while Fed governor Michelle Bowman will speak at the ‘Virtual Symposium on Indigenous Economies’.
On the data front, October’s Pending Home Sales and November’s Dallas Fed Manufacturing Index will be released today.
US dollar (DXY) technical levels:
- 52-week high: 96.52
- 52-week low: 89.212
- 50-day moving average (one-day chart): 94.42
- 200-day moving average (one-day chart): 92.41
- 14-day relative strength index (RSI) (one-day chart): 62.35
Chart of the day: Omicron variant slashes investors’ bet on earlier hikes next year
Target-rate probabilities for 4 May 2022 Fed Meeting as of 29 November 2021 – Data: CME FedWatch Tool, Credit: Capital.comEuro
The EUR/USD pair was last trading at 1.1287, down 0.2% today.
On Friday, the euro regained ground against the US dollar as investors reduced their expectations for Fed rate rises in 2022, which were among the primary reasons driving the pair lower in November.
Today, the eurozone]s economic sentiment index fell 1.1 points on the month to 117.5 in November 2021– the lowest level in six months, but in line with market forecasts.
Today’s agenda includes several European Central Bank (ECB) speakers, including ECB president Christine Lagarde, vice-president Luis de Guindos and board member Isabel Schnabel.
EUR/USD technical levels:
- 52-week high: 1.2349
- 52-week low: 1.1184
- 50-day moving average (one-day chart): 1.1540
- 200-day moving average (one-day chart): 1.1836
- 14-day relative strength index (RSI) (one-day chart): 38.12
British pound
The pound continues to trade linked to global risks mood, with the GBP/USD pair trading at 1.335 (0.2%).
On the Brexit front, the UK and the European Union (EU) will resume talks regarding the future of Northern Ireland this week.
GBP/USD technical levels:
- 52-week high: 1.4248
- 52-week low: 1.3133
- 50-day moving average (one-day chart): 1.3819
- 200-day moving average (one-day chart): 1.3585
- 14-day relative strength index (RSI) (one-day chart): 37.52
Forex performance heatmap – 29 November 2021
Forex performance heatmap as of 29 November 2021, 11:00 GMT – Credit: Capital.comOther currency pairs (% change from previous close):
- USD/JPY +0.13%
- USD/CHF +0.17%
- USD/CAD -0.41%
- AUD/USD +0.39%
- NZD/USD 0.0%
- USD/MXN -0.33%
- USD/ZAR -1.00%
- USD/TRY +2%
- USD/RUB -0.41%
- EUR/NOK +0.10%
- EUR/SEK -0.38%
- EUR/PLN -0.12%
- EUR/HUF -0.03%
Read more: Safe havens rally on new variant, ZAR sinks
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