CFD Markets News and Forecasts — 28-11-2021

• WTI consolidates Friday’s heavy losses around September’s low.
• Previous support from November 2020 challenges corrective pullback, bearish MACD signals also favor sellers.
• March’s top offer immediate support, 100-DMA adds to the upside filters.

WTI licks Friday’s wounds of 13% slump while defending the $70.00 threshold during Monday’s initial Asian session.

Even so, the black gold keeps the previous day’s downside break of the yearly support line, now resistance, while keeping the sellers on the driver’s seat. Adding to the bearish bias is the MACD line that stays deep down inside the red territory.

That said, March month’s high of around $67.85 offers immediate support to the commodity prices ahead of 38.2% Fibonacci retracement (Fibo.) of November 2020 to October 2021 upside, close to $65.40.

It should be noted, however, that September’s swing low near $61.80 becomes a tough nut to crack for WTI bears.

On the contrary, a daily closing beyond the stated support-turned-resistance around $71.35 needs validation from the 100-DMA level of $73.90 and the $74.00 threshold to recall the buyers.

Following that, November 22 low near $74.65 and July’s top of $76.40 will act as additional resistance for the bulls to cross.

WTI: Daily chart

Trend: Further weakness expected

• EUR/USD reverses Friday’s corrective pullback, refreshes intraday low at the latest.
• US NIH officials try to placate Omicron fears but ECDC and ECB’s Lagarde convey the pessimism.
• Market sentiment worsens on concerns that virus strain will stop previously hawkish central bank actions.
• President Biden will update US reaction to the virus variant, Fed’s Powell is up for a speech too.

EUR/USD retreats to 1.1280 during Monday’s initial Asian session, following the heaviest daily jump of 2021. The coronavirus variant, dubbed as ‘Omicron’, shook markets and the US dollar on Friday before the greenback started nursing losses a few hours back.

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.

The European Central Bank (ECB) was already hesitant to accept the hawkish calls for rate hikes and/or end the Pandemic Emergency Purchase Programme (PEPP) and the latest strain of the coronavirus offered another reason for them to turn dovish. Following the wide chatters of the stated ‘Omicron’, ECB President Lagarde crossed wires during an interview with Italian media in the weekend, shared by Reuters. ECB’s Lagarde said, "There is an obvious concern about the economic recovery [of the euro zone] in 2022, but I believe we have learnt a lot. We now know our enemy and what measures to take. We are all better equipped to respond to a risk of a fifth wave or the Omicron variant".

On the other hand, Atlanta Federal Reserve President Raphael Bostic spoke during the weekend as well while saying, “Covid is the source of inflation.”

Amid these plays, US stock futures print mild gains after the heavy fall of Friday whereas the US 10-year Treasury yields lick their wounds near 1.482%, the lowest level in 13 days. It’s worth noting that the US Dollar Index (DXY) struggles around 96.25% after declining the most since May.

Given the divergent view of the policymakers from Europe and the US, as well as higher hopes from the Fed than the ECB to announce rate hikes, the EUR/USD renews downside of late. The moves could escalate if Fed Chair Jerome Powell refrains from accepting the fact that the new version of the COVID-19 challenges the odds of the rate.

It’s worth noting that US President Joe Bide and ECB President Christine Lagarde are up for speeches as well, which in turn keeps the EUR/USD traders cautious ahead of the events. Also important are the US housing data and German inflation data from Europe.

Technical analysis

Despite crossing 10-DMA on a daily closing basis, around 1.1280 by the press time, even short-term EUR/USD bulls remain away from the entries until the quote crosses a monthly resistance line around 1.1445-50.

Following the comments from US National Institutes of Health (NIH) Director Francis S. Collins, coupled with consultation from top NIH official Anthony Fauci, the White House released a statement over the Omicron during early Monday morning in Asia.

Key quotes

Dr. Fauci informed the President that while it will take about two more weeks to have more information about the transmissibility, severity and other characteristics of the Covid-19 Omicron variant, he continues to believe that existing vaccines are likely to provide a degree of protection against severe cases of Covid.

Fauci reiterated that boosters provide strongest protection from Covid.

The President will provide an update on the new variant and the US response on Monday.

FX reaction

The news weighs on the market sentiment and drowns the risk barometer AUD/USD towards a three-month low by the press time.

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

Early Monday morning in Asia, Canadian Health Minister Jean-Yves Duclos crossed wires via Reuters while saying, “Two cases of omicron variation of concern have been identified in Ontario.”

The details suggest that the stated cases were found in Ottawa.

FX implications

USD/CAD drops back to 1.2750, retreats from the highest levels in two months flashed on Friday on the news. The reason could be linked to the oil traders catching a breather following the 13% slump amid OPEC’s delaying of the meet to  Wednesday and Thursday (1 and 2 December). 

Read: USD/CAD Weekly Forecast: COVID strikes again

• 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.

“There is no evidence of an omicron variation in the United States,” said Francis S. Collins, Director of the US National Institutes of Health (NIH).

The health official also rejected the claims that the virus strain is immune to the current vaccines while saying, “Current vaccines are likely to protect against Omicron.”

On the other hand, the European Centre for Disease Prevention and Control (ECDC) conveyed worries during the weekend while saying, “The omicron variant is the most divergent variant in significant numbers.”

“We are concerned omicron may significantly reduce vaccines' effectiveness and boost the risk of reinfections,” added ECDC.

ECDC also mentioned that the overall risk for the EU/EEA associated with the SARS-COV-2 variant omicron is high to very high.

Market reaction

Given the mixed news and early hours of the Asian trading session on Monday, not to forget Friday’s heavily volatile markets, global markets are yet to respond to the news. However, the risk-on is surely faded.

Read: Covid Special Report: How will worst coronavirus variant seen to date affect markets this week?

• GBP/USD bears charged on weekend covid news.
• UK contagion is a risk that blankets BoE rate hikes expectations.

GBP/USD, which has been tugged and pulled over recent weeks between central bank themes, now faces the risk of a covid contagion risk for the foreseeable future since the latest coronavirus threat. For the open, the bias leans to the downside considering the latest sell-off in the greenback and weekend reports that Omicron has breached the shores of the UK.

On Friday, GBP/USD's show of the upside was sold off sharply in the final hour of play, meeting an hourly level of support. Traders will be looking to see if this area, in the mid 1.33's, will hold up considering the implications that the sudden dilemma that the Bank of England will now need to juggle with regards to Omicron.

''Concerns it might be harder to combat the new variant found in southern Africa with vaccines also prompted investors to scale back their expectations for a Bank of England (BoE) interest rate rise in December, adding to downward pressure on the pound,'' Reuters reported.

The week ahead holds little domestically in terms of the pound, but market sentiment has been rocked and shifted towards the covid theme and US Nonfarm Payrolls, while critical, could take a back seat. The divergence between the Bank of England and the Federal Reserve has been a key driver and would normally be the catalyst. However, covid risks move into the driving seat for the open as the UK and EU cases spark fresh containment measures.

GBP/USD technical analysis 

From a technical perspective, the price still has room to move higher in the correction towards the 38.2% Fibo but at this juncture, it's already moved in on the old support. The lower time frames, such as the 4-hour chart will be monitored for bearish conditions and bearish structure to firm for the open. 1.3320 in this regard is compelling considering the prior highs and the W-formation's neckline that meets a 50% reversion: