Risky currencies rebound as Omicron fears fade
09:50, 7 December 2021
Global risk sentiment improved overnight amid encouraging preliminary data on Omicron’s severity as well as China’s reserve requirement ratio (RRR) cut to boost liquidity in the economy.
Early hospital statistics from South Africa indicate that Omicron seems to cause less severe symptoms, although experts caution about its higher infectiousness. Meanwhile, GlaxoSmithKline Plc announced that its Covid-19 antibody therapy is effective against the novel Omicron variant.
The US dollar remained relatively stable versus low-yielding currencies such as the euro (EUR), Swiss franc (CHF), and Japanese yen (JPY), while the British pound was broadly unchanged.
- EUR/USD was at 1.1273 (-0.11%) by 10:00 GMT
- USD/JPY edged up to 113.65 (+0.17%)
- USD/CHF declined to 0.9234 (-0.24%)
- GBP/USD was flat at 1.3258 (-0.05%)
High-beta currencies such as the Australian (AUD) and New Zealand dollar (NZD) rose as risk appetite strengthened overnight in Asian markets following the People’s Bank of China’s 50 basis point policy rate cut. Meanwhile, the Reserve Bank of Australia kept the interest rate unchanged at a record low of 0.1%, saying it is in no rush to hike rates as inflation in Australia is less worrying than in other advanced economies.
Oil-linked currencies, such as Norwegian Krone (NOK) and Canadian dollar (CAD), also strengthened with the help of higher crude prices.
Elsewhere, emerging market currencies gained ground, with the exception of the Russian rouble (RUB), which weakened by 0.4% amid renewed tensions between US and Russia over Ukraine.
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Forex daily matrix – 7 December 2021
Forex daily matrix as of 7 December 2021, 10:00 GMTUS dollar
The US Dollar Index (DXY) was last seen at a level of 96.27, unchanged on the day.
Despite risk-on sentiment across markets, the US dollar managed to remain firm against low-yielding currencies as monetary policy divergence revived again.
The yield on the two-year Treasury Note edged up further to 0.66% (+3 basis points), while the yield on the 10-year bond rose to 1.45% (+1 bps).
US money markets are now pricing in a 56% chance that the Fed will begin hiking rates as early as May 2022, according to CME’s latest FedWatch Tool.
On the data front, the October trade balance will be published today. The forecast is for a narrowing of the trade deficit, at -67 billion from -80.9 billion in September, thanks to a solid increase in exports as the US recovers after the blockade caused by hurricanes in September.
US dollar (DXY) technical levels:
- 52-week high: 96.82
- 52-week low: 89.22
- 50-day moving average (1-day chart): 94.74
- 200-day moving average (1-day chart): 92.58
- 14-day Relative Strength Index (RSI) (1-day chart): 62.94
Euro
EUR/USD was last at 1.1273, down 0.1% on the day.
This morning, German industrial production data showed a rebound of 2.8% month-on-month in October, well above a forecasted 0.8% increase. The September figure was revised upwards from -1.1% to -0.5% month-on-month.
The issue of monetary policy divergence between the Fed and the ECB has picked up again as the two-year Germany-UST yield spread increased to -136bps from -125bps in early December, in expectation of the Fed’s hawkish tilt and ahead of the US CPI data later this week.
EUR/USD technical levels:
- 52-week high: 1.2349
- 52-week low: 1.1184
- 50-day moving average (1-day chart): 1.1482
- 200-day moving average (1-day chart): 1.1806
- 14-day Relative Strength Index (RSI) (1-day chart): 38.41
Chart of the day: EUR/USD weakens as two-year Germany-US yield spread declines to 136bps
Correlation between EUR/USD and the two-year Germany-US yield spread – Credit: Capital.comBritish pound
The cable (GBP/USD) was broadly flat on the day, at 1.3258 by 10:00 GMT.
Yesterday, the construction PMI surprisingly rose to 55.5. (vs. the 54.2 that had been expected). This morning, the Halifax home price index in the United Kingdom increased 8.2% year-on-year in November, the fastest rate since June and the same as in October.
Meanwhile, a deal could be made soon between the EU and the UK over the Brexit fishing dispute. The crucial meeting will take place tomorrow, two days before Paris’s latest deadline of 10 December.
GBP/USD technical levels:
- 52-week high: 1.4248
- 52-week low: 1.3133
- 50-day moving average (1-day chart): 1.3529
- 200-day moving average (1-day chart): 1.3799
- 14-day Relative Strength Index (RSI) (1-day chart): 34.81
Forex performance heatmap – 7 December 2021
Forex performance heatmap as of 7 December 2021, 10:00 GMTOther currency pairs (% change from previous close):
- USD/MXN +0.06%
- USD/ZAR +0.52%
- USD/TRY -0.61%
- USD/RUB +0.43%
- USD/KRW -0.24%
- USD/CNH -0.13%
- EUR/NOK -0.37%
- EUR/SEK -0.26%
- EUR/PLN +0.21%
- EUR/HUF -0.08%
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