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US dollar edges higher as Omicron concerns ease

With omicron nerves easing overnight the US dollar reasserted itself, rallying modestly versus major currencies and holding steady in the EM space. The dollar index finished 0.10% higher at 96.12, edging higher to 96.17 in Asia. Notably, both the Australian and New Zealand dollars, key risk-sentiment barometers fell once again to 2021 lows, hinting that caution remains the key mantra in currency markets still.

EUR/USD has slid back below 1.1300 to 1.1295 and an upbeat US Non-Farm Payrolls tonight will set up a test of 1.1200 again next week. In a similar vein, GBP/USD has moved back through 1.3300 to 1.3390, with a retest of 1.3200 possible. USD/JPY rose as yen haven buying subsided overnight, climbing to 113.20 this morning. If indeed we are at “peak-omicron,” then this week’s low of 112.50 is likely to be the low for the pair for the foreseeable future.

The EM space was relatively sedate overnight, but the US dollar has resumed advances once again versus Asia FX today with USD/KRW, USD/IDR and USD/MYR up around 0.20%. A firm Non-Farm Payrolls number tonight will increase the pressure of the Asian currencies, whose monetary policies, buy and large, are not aligned with a Federal Reserve set to increase the pace of its taper.

I expect currency markets to remain subdued into the US tier-1 data. As usual this week, the caveat is omicron. If another negative headline were to hit the wires today, we will likely see US Dollar selling with the yen and Swiss franc as the main beneficiaries.

Germany PMI Services was finalized to 52.7 in November, up from October's 52.4. PMI Composite was finalized at 52.2, up slightly from October's 52.0. Markit said new business fell as fourth COVID wave took hold. Firms' expectation slipped to 12-month low. Rate of input cost and output price accelerated to new highs.

Phil Smith, Economics Associate Director at IHS Markit:

"Germany's service sector was able to eke out further modest growth in November, but the survey's forward-looking indicators gave reason for concern. Inflows of new work and business confidence were already in decline in November thanks to the fourth wave of coronavirus, and now the Omicron variant brings added uncertainty and a risk of tighter virus containment measures.

"Given what we've seen in the survey data so far and the potential new risks posed by the Omicron variant, the economy is, at best, set for a notable slowdown in growth in the final quarter.

"The survey data showed a further intensification of inflationary pressures in November driven by a surge in energy costs, with service providers joining manufacturers in recording an unprecedented rise in prices. This was despite signs of inflation already easing across consumer-facing sectors.

"Another strong round of hiring across the service sector in November maintained the labour market's solid pace of recovery. However, with recruitment tending to lag movements in activity and underlying demand, we can reasonably expect the pace of job creation to slow in line with weaker economic growth and lower business confidence."

Full release here.

The S&P 500 continues on its way down as investors jump ship amid the omicron scare.

The latest rebound has been capped by 4650, a sign that the bears are in control of short-term price action. A combination of pessimism and lack of buying interest means that the index is stuck in a bearish spiral.

An oversold RSI may cause a limited rebound as intraday sellers cover their positions. 4450 at the origin of a previous bullish breakout would be the next target. 4360 is the second line of defense that sits in a daily demand zone.

France PMI Services was finalized at 57.4 in November, up from 56.6 in October, signalling the strongest growth since June. Markit said strong jobs growth sustained as business activity continued to grow. Firms reported still-strong demand pressures. output prices rose at fastest rate since June 2011. PMI Composite was finalized at 56.1, up from October's 54.7.

Joe Hayes, Senior Economist at IHS Markit:

"November presented another positive month for France's service sector, with growth accelerating to a five-month high amid still-strong hiring activity and improving demand conditions.

"To be clear though, the service sector is what is keeping the economy afloat at the moment as France's manufacturing sector is struggling with massive supply-related constraints.

"This puts the wider economy in a precarious position, because as we've seen on other parts of Europe, the fate of the service sector is still a function of the trajectory of COVID-19 cases. Policymakers in France have so far talked down the potential for the most stringent of restrictions being implemented, which bodes well for economic activity through the next couple of quarters, but as we've seen before, this can change rapidly.

"That said, if France manages the current wave of infections, this should allow robust growth in the service sector to continue."

Full release here.

The euro recoups losses as traders reposition ahead of today’s nonfarm payrolls.

A bullish RSI divergence indicates a slowdown in the bearish push. The pair has found support near June 2020’s lows around 1.1190. Then successive breaks above 1.1270 and 1.1370 have prompted short interests to bail, paving the way for a potential reversal.

1.1460 next to the 30-day moving average would be the target and its breach may turn sentiment around. 1.1240 is a key support to keep the rebound relevant.

Gold treads water as markets await US jobs data release. The metal remains under pressure after it failed to maintain bids above 1780. Sellers are testing the daily support at 1760.

A bearish breakout would shatter hopes of a swift rebound and send the price to last September’s low at 1725. That move could then threaten the integrity of the uptrend on a longer timeframe.

1806 is a fresh resistance and sellers could be waiting to double down at a better price. On the upside, a bullish breakout may propel the metal to 1845.

ECB President Christine Lagarde said in a conference, "We are firmly of the view, and I'm confident, that inflation will decline in 2022." She described the inflation profile as a "hump", and while it's now at a high level of the hump for Eurozone, " a hump eventually declines."

Lagarde also said that energy prices will have declined significantly by the end of 2022. But supply bottlenecks will take until mid-2022 or end 2022 to end.

Separately, Governing Council member Klaas Knot said the central bank could decide to raise interest rates by 2023 if inflation continues to exceed expectations next year.

Since late Wednesday's trading session, the USD/CAD currency exchange rate has been testing the resistance of the 1.2830/1.2837 zone. Meanwhile, support was being provided by the 50-hour simple moving average and the zone that is located at the 1.2800 mark.

In a scenario where the rate passes the resistance zone of 1.2830/1.2837, the pair could immediately find resistance in the weekly R1 simple pivot point at 1.2847 and the 1.2850 level. Above these levels, the most close by known resistance was the weekly R2 simple pivot point at 1.2909 and the 1.2900 mark.

Another scenario would have the rate decline below the 1.2800 mark and the 50-hour simple moving average. A potential decline of the pair is most likely going to look for support in the lower trend line of the November channel up pattern.

Since the last attempt to break out of the channel down pattern, the GBP/JPY rate has been trading in limbo around the 150.50 mark. Initially, it might appear that the rate is trading sideways. However, an in-depth look reveals that the pair has been forming a minor triangle pattern. Namely, the range of trading is decreasing until either buyers or sellers would take over and cause a break out in the form of a sharp move either up or down.

If the pair breaks out to the upside, it could aim at the resistance zone, which surrounds the 151.50 level. Although, the 151.00 mark might slow down a potential surge, as it has shown during the week that it can shortly impact the GBP/JPY.

In the meantime, a potential decline of the pair might find some support in the 150.00 mark and the weekly S1 simple pivot point at 149.93. However, these levels failed to keep the rate up on December 1. It is more likely that the rate could look for support in the lower trend line of the channel down pattern, despite it having been pierced two times during this week.

The AUD/USD currency pair passed the support zone at 0.7092/0.7094. Namely, the support zone held for seventeen hours before it was passed. The event resulted in a decline, which by the start of Friday's European trading had almost reached the weekly S1 simple pivot point at 0.7056. In addition, the 0.7050 mark might serve as support.

In the meantime, note that the rate has reached an absolute 2021 low level. Namely, the pair is approaching the 2020 September and October low levels near 0.7000. In addition, it was spotted that the rate has been declining in a three times confirmed channel down pattern since the start of November. This pattern could guide the rate to the historical low level.

A continuation of the decline of the AUD/USD would have no technical support as low as the weekly S2 simple pivot point at 0.7012. Below the pivot point, the 0.7000 mark is close by. However, take into account that the pair might find support in round exchange rate levels like the 0.7050, 0.7040 and 0.7020.

On the other hand, a potential recovery of the pair would find resistance in the weekly S1 simple pivot point at 0.7072. Above the pivot point, the 0.7092/0.7094 zone might act as resistance. Higher above, the 50-hour SMA is located near 0.7110. Above the SMA, note the upper trend line of the November channel down pattern.