AUD/USD retreats towards 0.7100 as ‘Omicron’ sours sentiment

• AUD/USD fades bounce off three-month low after the heaviest daily fall since early November.
• Australia reports first case of Omincron but PM Morrison rejects calls of quarantine before Christmas.
• Virus roiled markets by pushing back monetary policy tightening hopes and wither growth optimism.
• US housing data, Fed’s Powell will be important but nothing more than the virus updates.

AUD/USD drops back to 0.7118, following a timid bounce off a three-month low surrounding 0.7115, during early Monday morning in Asia. In doing so, the Aussie pair proves right on its risk barometer status amid the market's fears emanating from the coronavirus variant dubbed as ‘Omicron’. It should be noted, however, that the Aussie policymakers are trying to placate the fears but have had little success of late.

With its grave symptoms like heavy mutations and ability to fight vaccines better, Omicron raises serious concerns against the market’s previous optimism during an otherwise holiday-thinned day. Not only the fears concerning health but challenges to the earlier talks of the monetary policy tightening also seem to have closed by the stated virus variant.

Australia, unfortunately, joins the key global economies that registered Omicron cases. “Australia and Austria reported their first cases of the Omicron variant, joining a group of countries including the U.K., Germany, Belgium, Israel and Italy that have detected a strain that authorities say could be more transmissible than other variants,” per the Wall Street Journal (WSJ).

Prime Minister Scott Morrison is up for calling an emergency cabinet meeting, per ABC News, while also terming the emergence of the coronavirus variant as "concerning". However, the policymaker also said, per ABC News, that Australia had dealt with other strains of the virus before and it is "too early" to make decisions about reinstating quarantine before Christmas.

Hence, the AUD/USD traders remain pressured around a three-month low flashed on Friday, also inch closer to the yearly bottom surrounding 0.7100. However, bears await more news to copy Friday’s moves.

It should be noted that global markets roiled and riskier assets suffered the most in multiple weeks the previous day on the news of the South African strain of the coronavirus. The fears gain momentum on chatters that the stated variant spreads faster and can resist the vaccines. However, the findings are still in infancy and mixed as well, troubling traders of late.

Even so, the US 10-year Treasury yields dropped the most since the early days of the pandemic whereas the US stocks dropped over 10% during a few hours of the trading session on “Black Friday. It’s worth observing that the US dollar fails to cheer the risk-off mood amid challenges to the Fed rate hike concerns.

Hence, today’s speech from Federal Reserve (Fed) Chairman Jerome Powell becomes the key for the markets, as well as the US Pending Home Sales for October, expected 1.0% MoM versus -2.3% prior. Above all, the COVID-19 updates will be crucial to watch for the near-term market direction.

Technical analysis

A clear downside break of the yearly support line, now resistance around 0.7145, directs AUD/USD towards further south than the yearly low of 0.7105. That said, the 38.2% Fibonacci retracement (Fibo.) of March 2020 to February 2021 run-up around 0.7050 and a horizontal area comprising multiple levels marked between June and November 2020, near 0.7000-6990, will be the key to follow.

Meanwhile, any corrective pullback remains elusive below 0.7145, a break of which can recall short-term buyers to aim for the monthly resistance line around 0.7240. In a case where AUD/USD bulls manage to keep the reins past 0.7240, July’s low and the mid-November’s swing high, respectively around 0.7290 and 0.7370, will be on their radar.