Markets continue to price in a positive view on how the story with the new covid strain will unfold. In addition to the positive statements of influential health officials in leading countries such as the US, it is also useful to look at the daily cases data in the country where the strain was originally identified in order to see the dynamics of the spread of a strain that is supposedly “resistant to existing vaccines”. We are talking about South Africa, and the curve of daily cases there looks like this:

Actually, it is clear that after the surge in the incidence against the background of news about the new strain, there wasn’t any concerning development of the growth trend. The incidence rates remain high, but keep within 15 thousand cases per day.

Zerohedge provides the following interesting chart that shows how the markets are quickly discounting the threat posed by the new strain. This is the ratio of the recovery stocks index to the index of stocks that rallied during social restraints (the so-called stay at home stocks). In about two weeks, the decline in this ratio was fully recouped:

The VIX opened with a gap down more than four points in premarket, indicating strong bullish momentum confirmed in the US index futures which are currently gaining strength.

Given the growing speculation that the Fed will step up with withdrawal of stimulus in the near future due to strong pro-inflationary factors (mainly wage pressures), the balance of risks for EURUSD is increasingly shifting downward. The differential of rates on short-term bonds of the US and Germany has turned to growth again and is approaching a local recent maximum and is likely to break through it soon. The growing differential factor is the main bearish driver for EURUSD now. From a technical point of view, the vulnerable level is the lower border of the trend channel - the level 1.111, the rebound from the previous point of contact with the channel has already been completed, the risks associated with the new strain are mitigated, and the increasingly aggressive position of the Fed against the background of the moderate position of the ECB will most likely continue to provide downward pressure on the pair: