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Dollar
So far in the day, the dollar has remained largely stable. There hasn’t been a lot of noticeable action in the FX market.
EUR/USD is trading between 1.1320-25, while USD/JPY is trading about 113.20, barely off session highs of around 113.33 earlier.
With risk sentiment holding up and Treasury rates crawling up from yesterday’s lows, the USD/JPY is holding up, with the 9 November low of 112.73 still holding at the daily close and offering some reassurance to buyers.
However, the scenario is identical to yesterday’s, with price movement remaining below both significant hourly moving averages. The 100-hour moving average is close by at 113.38, so it might be a source of dispute later in the day.
Elsewhere, the dollar is remaining marginally down against commodity currencies as risk takes a breather (don’t be deceived by the losses in Europe, which are more due to a catch-up to the decline on Wall Street yesterday).
USD/CAD is down 0.2 percent to 1.2790, while AUD/USD is up 0.1 percent to just above 0.7100 and NZD/USD is up 0.2 percent to 0.6820, albeit all of these ranges remain narrow.
Europe
European shares begin lower as they try to catch up to Wall Street’s losses from yesterday.
Eurostoxx -1.0 percent;
Germany’s DAX -1.2 percent;
France’s CAC 40 -1.1 percent;
the United Kingdom’s FTSE -0.8 percent;
and Spain’s IBEX -1.3 percent.
This comes as no surprise given that European equities performed strongly yesterday, closing well ahead of the late shift in mood that led US stocks to fall after a reported case of the omicron strain was discovered in the US.
Despite Europe’s bearish bias, overall risk sentiment remains positive, with S&P 500 futures up 0.7 percent, Nasdaq futures up 0.5 percent, and Dow futures up 0.8 percent.
Bond rates are also marginally higher, which is improving the mood, with 10-year Treasury yields hovering around 1.45 percent after falling below 1.40 percent yesterday.
New Zealand
The NZD’s weakening following the last RBNZ meeting had been perplexing. With so many upward adjustments to New Zealand’s economic forecast, it was logical to expect some NZD purchasing. Fears of NZD selling have become much more understandable after the appearance of the omicron version. Because it is a high beta currency, like the CAD and the AUD, it is natural for it to fall during periods of risk aversion. But where does the NZD go from here? Let’s have a look at two scenarios to see if the variation fades or does not fade.
What if the omicron worries dissipate?
This is the most simple perspective. The NZD should instantly gain ground versus the safe-haven currencies of the CHF and JPY. As a result, NZDCHF and NZDJPY should see significant increases.
If the omicron worries do not dissipate,
This is when things start to get interesting. Young-Ha, the Chief Economist, stated that “markets have properly interpreted the data developments and moved interest rates in a way that’s generally consistent with the RBNZ’s forecast cash rate trajectory.” The current interest rate is 0.75 percent. The rate path is for the OCR (Official Cash Rate) to be 1.5 percent in June 2022, 2.1 percent in December 2022, and 2.6 percent in December 2023. This was raised up following the most recent rate meeting as the RBNZ sought to respond to record-high inflation and low unemployment.
According to Moderna’s Chief Medical Officer, a new vaccine version might be available early next year.
Trade ideas
A familiar storey greets us once again as we transition from Asia to Europe, one in which risk trades are faring well, with US futures higher and bond rates holding up after being dragged lower in trading yesterday.
However, there is a sense that the euphoria is wearing thin, with investors likely accepting to the idea that all it takes is another omicron report to send tremors through the market once more.
As said at the outset of the week, omicron’s worries may be exaggerated once we receive more information in a few weeks, but there is still no urgency to go back into risk trades for the time being until the fog clears.
Expect volatility to persist, therefore be wary of the dangers at this time. This is a fantastic exercise in patience and reading market mood.