The news flow concerning the new covid strain continues to keep investors in suspense, with the VIX trading at its highest level since May 2020 (28-30 points):
The bullish rebound in EURUSD fizzled out near 1.14 level thanks to Powell's hawkish comments and better-than-expect US eco data. A solid NFP report for November is needed to keep bearish sentiment in check as negative economic consequences from the spread of the new strain remains major risk.
Yesterday the markets priced in the news that Omicron was identified in the US, which was characterized by elevated market volatility. There was also good news, though: GlaxoSmithKline reported that the company's antibody treatment is effective against the new strain, as suggested by early trials. Very encouraging news for the market was the statement of the WHO that existing vaccines will likely protect against severe course of the disease which obviously bodes well regarding to hospitalization rates in case of the spread of the new strain. Also, the head of the Australian Ministry of Health said there are no evidence that omicron leads to more hospitalizations and this implies lowered risk of social curbs imposed by the governments.
The big uncertainty for commodity currencies will be the OPEC meeting tomorrow, at which the issue of a planned production hike will be decided. However, due to heightened pandemic risks, market participants also consider the possibility that OPEC will cut production in order to balance demand risks. Thanks to these expectations, oil quotes are regaining their decline, however, the optimism is rather moderate, as the baseline scenario remains the extension of the existing production quotas. In the event of a production cut, WTI could easily rise above $70 a barrel.
European markets again go on the defensive today, the fall of the main indices has exceeded 1%, futures for US indices nevertheless maintain positive dynamics and trade in green expecting continuation of strong economic prints from the US, including labor market data.
The ADP report beat forecast yesterday (534K vs.520K forecast) while the manufacturing PMI in the US showed that the sector maintained high rate of expansion in November. Before the release of the NFP, the dollar index will probably continue to consolidate around the 96-point mark, and the EURUSD will not be able to overcome the formed resistance at 1.1350-1.1360. However, towards the end of the year, seasonally weak USD may help USD to recover further potentially challenging 1.16 resistance level:
Import factor for this will be the ECB stance especially its reaction function against increasing inflation pressures as shown in the latest bunch of inflation data (German CPI beat, EU CPI beat).