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Dollar’s shine dulls in forex arena; Are Omicron risks set to rise? Will Omicron underpin infections?

The chaotic 2021 period is soon coming to an end and the lack of market driving news on today’s economic calendar is unlikely to help this year leave with a bang. That said, major US index futures are persisting around their all-time highs suggesting that positive market sentiment may roll over into the new year.

It seems that markets have become robust against fresh threats from the coronavirus, even in the holiday season, as Christmas adds infection spikes and unwanted pressures and the recovery. It will be interesting to see what the new year celebrations bring in terms of pandemic related strain on the economy, supply shortages and expectations of interest rate lift off for 2022 should the new year numbers dwarf what we have seen towards year end.

The reserve currency has lost its strength lately, but the dollar index is showing resilience holding around the 96.00 vicinity. Nevertheless, the dollar appears to be on the back foot across the forex arena. The euro is consolidating around $1.1325, while the pound is faring better rising to $1.3450. The yen has struggled to overpower the greenback even at year end with the pair holding around 114.80 per dollar.

The S&P CoreLogic Case-Shiller selling price of single-family homes in 20 metropolitan areas rose 18.4% year-on-year in October of 2021, easing for a third consecutive month and slightly below forecasts of 18.5%.

The average selling price of single-family houses with guaranteed mortgages increased by 1.1% from a month earlier in October, in the wake of a 0.9% advance in September.

All and all, depending on the new developments over the festivities around year end, the risks remain that restrictions could return, should the numbers continue to skyrocket in the first months of 2022.

Oil capitalizes on easing Omicron worries

WTI oil futures five day rally has hiked the price of oil back to around $76.50 per barrel, around a $10 appreciation. Oil appears to be aided by expectations that the variant will have a limited impact on global demand.

It will be interesting to see OPEC+ action in the meeting on January 4, at which the alliance will decide whether to go ahead with a planned 400,000 barrels-per-day production increase in February.

The wind in gold’s sails may be related to the 10-year Treasury yield being so low as well as the precious metals haven appeal. Gold retains its recent buoyancy above the $1,800/oz mark.

In commodity currencies, the loonie appears to be drifting slightly beneath the $1.2800 per dollar mark, while the aussie has pushed to 0.7260, and the kiwi is hovering around 0.6820.

Upcoming at 15:00 GMT, December consumer confidence and the Richmond manufacturing index are due.

Daily Pivots: (S1) 1.1309; (P) 1.1321; (R1) 1.1340; More...

Intraday bias in EUR/USD remains neutral as sideway trading continues. On the downside, break of 1.1185 will resume larger decline from 1.2348. Next target is 161.8% projection of 1.2265 to 1.1663 from 1.1908 at 1.0934. On the upside, firm break of 1.1382 resistance should confirm short term bottoming at 1.1186. Intraday bias will be turned back to the upside for 55 day EMA (now at 1.1405) and above.

In the bigger picture, there are various ways of interpreting the fall from 1.2348 (2021 high). It could be a correction to rise from 1.0635 (2020 low), the fourth leg of a sideway pattern from 1.0339 (2017 low), or resuming long term down trend. In any case, outlook will now stay bearish as long as 1.1703 support turned resistance holds. Sustained break of 61.8% retracement of 1.0635 to 1.2348 at 1.1289 would pave the way back to 1.0635.

Daily Pivots: (S1) 1.3408; (P) 1.3427; (R1) 1.3462; More...

GBP/USD's rebound from 1.3158 is still in progress and intraday bias stays on the upside. Sustained trading above 55 day EMA (now at 1.3426) will be an early sign of bullish reversal. That is, correction from 1.4248 might have completed with three waves down to 1.3158, after hitting 1.3164 medium term fibonacci level. Further rally would be seen to 1.3570 support turned resistance next. On the downside, break of 1.3375 minor support will turn intraday bias neutral first.

In the bigger picture, focus remains on 38.2% retracement of 1.1409 to 1.4248 at 1.3164. Sustained break there will argue that whole rise from 1.1409 has completed at 1.4248, after rejection by 1.4376 long term resistance. That will revive some medium term bearishness and and target 61.8% retracement at 1.2493. However, strong rebound from current level will revive argue that up trend from 1.1409 is still in progress, and probably ready to resume.

Daily Pivots: (S1) 0.9166; (P) 0.9183; (R1) 0.9193; More....

Intraday bias in USD/CHF remains at this point. On the downside, below 0.9156 will target 0.9084 support. Firm break there should confirm that choppy rise from 0.8925 has completed, and suggests that fall from 0.9471 is resuming. Deeper decline would be seen through 0.8925. On the upside, break of 0.9293 will suggest that the pull back from 0.9372 is finished. Intraday bias will be turned back to the upside for 0.9372.

In the bigger picture, the corrective structure of the rebound from 0.8925 argues that fall from 0.9471 is not complete yet. It could either be the second leg of pattern from 0.8756 (2021 low), or resuming larger down trend from 1.0237 (2018 high). We'd pay attention to the downside momentum and assess the odds later. But for now, medium term outlook will be neutral at best as long as 0.9471 resistance holds.

Daily Pivots: (S1) 114.49; (P) 114.71; (R1) 115.10; More...

Intraday bias in USD/JPY remains on the upside as rise from 112.52 is in progress. Further rise would be seen to retest 115.51 high first. Firm break there will resume larger up trend to 118.65 long term resistance next. On the downside, however, break of 114.30 will turn bias to the downside, and extend the corrective pattern from 115.51 with another falling leg back to 112.52 support.

In the bigger picture, no change in the view that rise from 102.58 is the third leg of the up trend from 101.18 (2020 low). Such rally should target a test on 118.65 (2016 high) on resumption. However, firm break of 109.11 structural support will argue that the trend might have reversed and bring deeper fall to 107.47 support and possibly below.

Daily Pivots: (S1) 0.7216; (P) 0.7231; (R1) 0.7255; More...

AUD/USD's rise from 0.6992 continues today and edges higher to 0.7263. Intraday bias stays on the upside. Sustained trading above 55 day EMA (now at 0.7236) will argue that fall from 0.8006 has completed at 0.6992, after defending 0.6991 support. Further rally would be seen to 0.7555 resistance for confirmation. On the downside, below 0.7205 minor support will mix up the near term outlook and turn intraday bias neutral first.

In the bigger picture, strong rebound from 0.6991 key structural support will retain medium term bullishness. That is, whole up trend from 0.5506 is still in progress. Firm break of 0.7555 resistance will target 0.8006 high and above. However, sustained break of 0.6991 will argue that the whole up trend from 0.5506 might be finished at 0.8006, after rejection by 0.8135 long term resistance. Deeper decline would then be seen back to 61.8% retracement of 0.5506 to 0.8006 at 0.6461.

Australian Dollar rides on solid risk-on sentiment and rallies broadly today. US futures point to higher open while S&P 500 would extend record run. Swiss Franc is surprisingly firm too but it's helped by selloff against Euro, together with Sterling. Dollar is currently the worst performing, together with Canadian and Yen while Euro is not too far away.

Technically, we'll keep an eye on EUR/CHF as it's about time for consolidation from 1.0365 to finish. Break of 1.0365 will resume larger down trend from 1.1149 to 161.8% projection of 1.1149 to 1.0694 from 1.0936 at 1.0200 next. Such development could sign more downside in Euro elsewhere.

In Europe, at the time of writing, DAX is up 0.79%. CAC is up 0.54%. UK is on holiday. Earlier in Asia, Nikkei rose 1.37%. Hong Kong HSI rose 0.24%. China Shanghai SSE rose 0.39%. Singapore Strait Times rose 0.78%. Japan 10-year JGB yield rose 0.0002 to 0.064.

Bitcoin could be heading back to 45560 support

We're viewing Bitcoin's price actions from 41908 spike low as a corrective pattern. Even in case of another rise, strong resistance should be see from 53299 support turned resistance to limit upside. Indeed, break of 45560 support will argue that fall from 68986 is resuming through 41908.

Today's fall has pushed Bitcoin back below 50k handle and 4 hour 55 EMA. We'll now monitor if there is more downside acceleration to push it through 45560 to trigger the above bearish case.

WTI oil extending rally, eyeing 77.2 projection level

Oil prices follow broad based risk-on sentiments and jumped higher this week. Investors seem to be getting Omicron worries behind, as the health impacts of infection look much milder than feared.

With the strong break of 55 day EMA, WTI's pull back from 85.92 has likely completed at 62.90 already. Immediate focus is now on 100% projection of 62.90 to 73.66 from 66.46 at 77.22. Firm break there could bring upside acceleration to 161.8% projection at 83.86.

For now, we're viewing the pattern from 85.92 has a sideway corrective pattern, with range set between 61.90 and 85.92. Hence, we'd not expecting a break of 85.92 any time soon. Instead, there should at least be one more falling leg to complete the pattern. Let's see.

Japan industrial production surged record 7.2% mom in Nov

Japan industrial production rose 7.2% mom in November, well above expectation of 4.8% mom. That's the biggest gain on record, going to back to as early as 1978. Comparing to the same month of 2020, industrial production was up 5.4% yoy.

Based on a poll of manufacturers, the Ministry of Economy, Trade and Industry expects output to advance 1.6% in December and climb 5.0% in January.

Also released, unemployment rate edged up to 2.8% in November, from October's 2.7%.

AUD/USD Mid-Day Report

Daily Pivots: (S1) 0.7216; (P) 0.7231; (R1) 0.7255; More...

AUD/USD's rise from 0.6992 continues today and edges higher to 0.7263. Intraday bias stays on the upside. Sustained trading above 55 day EMA (now at 0.7236) will argue that fall from 0.8006 has completed at 0.6992, after defending 0.6991 support. Further rally would be seen to 0.7555 resistance for confirmation. On the downside, below 0.7205 minor support will mix up the near term outlook and turn intraday bias neutral first.

In the bigger picture, strong rebound from 0.6991 key structural support will retain medium term bullishness. That is, whole up trend from 0.5506 is still in progress. Firm break of 0.7555 resistance will target 0.8006 high and above. However, sustained break of 0.6991 will argue that the whole up trend from 0.5506 might be finished at 0.8006, after rejection by 0.8135 long term resistance. Deeper decline would then be seen back to 61.8% retracement of 0.5506 to 0.8006 at 0.6461.

Economic Indicators Update

USDJPY has completed the 5th wave as an ending diagonal (wedge) pattern and that weakness will resume towards much lower prices as a drop from 115.52 unfolded as an impulse.

Ideally, that was wave A)/1), so more weakness is coming after an A-B-C rally within wave B)/2), which can be now approaching important and key do/die resistance here around 78,6% Fibonacci retracement and 115 level, from where we should be aware of another decline for wave C)/3).

USD/JPY 4h Elliott Wave analysis

• Global stock markets get a lift from S&P 500’s latest dash to new all-time highs
• Dollar holds steady but yen on a broad pullback amid easing Omicron jitters
• Oil bounces back as demand worries subside, gold hits one-month high

Wall Street’s Santa rally not over yet

Shares on Wall Street continued to rally on Monday to notch up a fourth straight day of gains, pushing the benchmark S&P 500 index to a new all-time high of 4,791.19. Having started the year around the 3,700 level, the S&P 500’s gains have exceeded even the most bullish analyst forecasts, highlighting how powerful the Fed’s emergency stimulus has been.

Even now, as the Fed has begun to taper its asset purchases and flag an earlier-than-expected liftoff, financial conditions remain extremely accommodative, with long-term borrowing costs set to end the year well off their peaks.

Furthermore, while the Omicron variant is causing havoc in many parts of the world – daily cases worldwide hit a new record yesterday – and there’s a substantial risk that health services in America, Europe and the UK could yet get inundated by the surge in new infections, investors are hopeful that this won’t lead to draconian restrictions.

Diverging policy responses to soaring Covid cases

The UK’s health minister yesterday confirmed that there won’t be any new measures for England before the New Year, while the French government tightened some rules but opted against a shutdown.

UK traders won’t be returning till tomorrow but shares on the continent staged an impressive rally on Monday, extending the rebound from the November trough. Europe’s major bourses opened higher today as US stock futures held in positive territory and Asia also joined the party.

Concerns about a slowdown in China on the back of the property crisis and regulatory crackdowns have been dogging Asian stocks in recent months, particularly the Hang Seng index, but the mood appears to be brightening up slightly towards the year-end.

The Nikkei 225 index in Tokyo closed up 1.4% and China’s CSI 300 index ended 0.7% higher, aided by a fresh injection of liquidity by the PBOC today. China reported another spike in daily infections for Monday, adding to fears about its zero-Covid policy as the virus spread becomes more and more difficult to contain.

Dollar slightly softer, yen off lows

The Omicron-induced uncertainty combined with expectations of a low terminal Fed funds rate are keeping a lid on the 10-year Treasury yield, which has been drifting lower this week. However, the two-year yield just shot up to a 22-month high of 0.7580%, indicating renewed optimism that the US economy would be able to sustain a tightening in Fed policy following some upbeat high-frequency data showing strong retail sales in the run up to Christmas.

Nevertheless, the US dollar fell back slightly on Tuesday, with its index hovering around 96.05. The pound and euro were steady, while the yen attempted to recover from its earlier session lows. It firmed to around 114.75 per dollar at the start of European trading. The safe-haven yen was yesterday’s biggest casualty of the improved risk sentiment, skidding against all of its major peers.

In the meantime, the softness in the greenback helped the Australian dollar to nudge up towards one-month highs. The kiwi was only marginally higher, but the Canadian dollar slipped, paring some of yesterday’s solid gains posted on the back of the strong bounce back in oil prices.

Oil and gold climb to one-month highs

WTI and Brent crude oil futures are extending their gains today, in line with the broader risk-on theme, climbing above $76 and $79 bpd respectively to reach one-month highs. Although there is still some nervousness about Omicron and how much of an impact it will have in denting demand over the next few months, investors seem to be pricing out the worst-case scenarios.

Next week’s OPEC meeting could be crucial in determining how long this latest rebound lasts.

Gold also continued to edge higher, surpassing the $1815/oz level for the first time since late November. The subdued 10-year Treasury yield and the somewhat directionless dollar are supporting the precious metal’s advances this week even as risk appetite recovers further.