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The Euro started a fresh recovery from the 1.1185 zone against the US Dollar. The EUR/USD pair traded above the 1.1200 resistance zone to move into a short-term positive zone.

However, the pair is still well below the 1.1250 level and the 50 hourly simple moving average. There is also a key bearish trend line forming with resistance near 1.1220 on the hourly chart.

An immediate resistance near the 1.1225 level. A break above the 1.1220 and 1.1225 resistance levels could lead the pair towards the 1.1250 zone, above which the pair could rise towards 1.1320 on FXOpen.

On the downside, an initial support is near the 1.1205 level. The key support is near 1.1200, below which there is a risk of a fresh decline. The next major support is near the 1.1185 level.

Covid variant has markets seeing red

Asian stock markets are under heavy selling pressure this morning with investors spooked by the emergence of a heavily mutated variant of Covid-19 in South Africa, lovingly called B.1.1.529. The UK has paused flights from South Africa and five other neighbouring countries, and we can expect more of the same elsewhere, the complacency seen with the emergence of delta in India being a lesson harshly learned. Two cases with the new variant have already been detected in Hong Kong today. Headlines are also floating around this morning about tightening virus restrictions in parts of China.

With US markets closed for holidays, investors are voting with their feet this morning. The one bull in the China shop that could truly derail the global recovery has always been a new strain of Covid-19 that swept the world and caused the reimposition of mass social retractions. All we know so far is the B.1.1.529 is heavily mutated but markets are taking no chances, equities are falling, haven currencies such as the US dollar, Japanese yen and Swiss franc are rallying, commodity currencies such as the CAD, AUD and NZD are being sold, US 10-year bond yields have moved sharply lower, and oil has slumped. USD/ZAR and USD/MXN are 1.0% higher signalling Asian FX will be under pressure today. In other words, a classic risk-off, flight to safety move.

With the delta wave in mind from earlier this year, investors are likely to shoot first and ask questions later until more is known about it. Unlike many, I do not pretend to be a learned armchair virologist, but viruses do not mutate to become less effective, so assuming the worst is probably the safe option for now. The return of US markets this afternoon, mostly for a half-day session, is unlikely to change that narrative ahead of the weekend.

We could talk about the Asian data calendar today, but it really doesn’t matter anymore, only one theme will be driving markets today. Australian Retail Sales did post an extraordinary 4.90% MoM rise for October, thanks to the reopening of New South Wales and Victoria. We could also speculate on Black Friday/Cyber Monday or next week’s start-of-month calendar, culminating with the US Non-Farm Payrolls. In reality, investors around the world will be glued to their news feeds as the WHO meets with South African officials today, and the evolution of the B.1.1.529 variant. That will drive price action at the start of next week.

For today, I expect haven currencies to outperform with emerging market FX and commodity/risk sentiment currencies likely to have a tough day at the office. Gold will remain well supported even as oil and industrial metals suffer. US bonds are always a favourite place for investors to run and hide, and yields should continue to fall today. (prices move inversely to yields) That alone should mean the dollar remains a favourite. The equity space will remain unloved, and I would imagine Europe, which already has Covid-19 issues weighing on asset prices, will come in for particular attention with German Bunds being the main beneficiary. If one was to look for good news in the stock space, one could consider technology and dusting of that working from home portfolio again. At least Zoom will be happy.

Markets

Black Friday takes off as Red Friday. A new variant of the Covid-virus is spreading rapidly in South-Africa and is outcompeting other variants at lightening speed. It put global governments on red alert, adding South Africa and its neighboring countries back on travel restriction lists. The virus news triggers outright risk aversion this morning. Asian stock markets lose up to 2% with the Nikkei underperforming (-2.5%). Core bonds fall prey to short covering, sending the German Bund and US Note future significantly higher. The damage in yield terms for the US 10y yield is almost 10 bps compared to Wednesday’s close. US markets were closed yesterday in observance of Thanksgiving. The latter by the way risks being catalyst of a new surge of Covid-infections in the US. The jury is still out on that one. In other asset classes, gold recovers from a 5-day beating. Gold serves as an inflation hedge, but gets smashed when real rates are rising. That’s exactly what had been the case the past days. This morning’s risk-off brings bullion back above $1800/ounce. Oil and commodity prices in general decline by up to 5% (iron ore). Brent crude falls from around $82/b to $80/b. The chain of command in FX space is clear. The Japanese yen and Swiss franc are undisputed winners. The Japanese yen this way finally gets some reprieve after spending some days at lowest levels since 2017 against the dollar. USD/JPY sheds a big figure from 115.40 to 114.40. EUR/CHF tests the lowest levels (strongest for CHF) since 2015 in a move the SNB surely hates to see. We wondered for some time already where the pain threshold for the central bank is situated, but admit that market conditions don’t really allow for rowing against the tide for now. The single currency and the greenback hold a tight balance for now. The dollar traditionally outranks the euro in such market environment. At least the ECB’s stubborn inflation approach serves good for something. Smaller and less liquid currencies lose out against the euro. EUR/GBP extends its bottoming-out process, currently changing hands around 0.8450. The risk environment complicates CE currencies inflation crusade, which (for PLN & HUF) already receives an “insufficient” from markets. The effect from yesterday’s MNB 1-week deposit rate hike (from 2.5% to 2.9% vs 2.1% base rate) is for a large part erased at EUR/HUF 367.50. EUR/PLN marches back to the 4.70 area. EUR/CZK trades at the highest level since early November (25.70). The scorecard is similar for the likes of NZD/USD (test of YTD low at 0.68) and AUD/USD (test of YTD low at 0.71).

Today’s eco calendar is empty. On top, US markets close early. This market setting and uncertainty over the rapid development of the Covid-strain suggests that investors will hold on to this morning’s cautious approach going into the weekend.

News headlines

The UK along with Israel, Mozambique and Singapore will place six southern African countries, including Namibia, South Africa and others, on the red list of travel restrictions. The move follows a surge of a significantly mutated coronavirus variant that seems to be spreading considerably faster than the current dominant Delta strain. Direct flights from the countries are banned from midday today until it is able to quarantine arrivals for 10 days in hotels. This is scheduled to be up and running from Sunday morning. The South African rand accelerates a losing streak this morning with USD/ZAR surpassing 16 for the first time in a year.

Tokyo consumer prices in November rose the most in a year. The headline figure came out slightly above expectations, at 0.5% vs 0.4% y/y. Core measures excluding food rose from 0.1% last month to 0.3%. Energy remained a key driver though, since excluding that category along with food meant that November prices still declined with 0.3%. Nevertheless, the Bank of Japan’s newest board member Nakagawa said she’s seeing a gradual emergence of upward price trends, adding that consumer prices “don’t look like they will stay around zero forever”. The yen strengthens to USD/JPY 114.5 though this is exclusively on the back of Asian risk-off.

EUR/USD

Current level - 1.217

The dollar continues to appreciate against the common European currency and has reached a local bottom at 1.1185. At the time of writing, the currency pair is trading in a consolidation phase in the zone between 1.1185 and 1.1230. The expectations are for the pair to retest the support at 1.1185, and to possibly head towards 1.1125. In the positive direction, the first resistance lies at 1.1230.

USD/JPY

Current level - 114.96

The currency pair entered a corrective phase following the unsuccessful attempt at breaching the resistance at 115.50 and, at the time of writing, it is confirming a breach of the support level of 114.89. If the breach doesn’t happen, then the correction could develop further and the pair could move towards the support zone at 114.20. In case the support at 114.89 manages to withstand the bearish attack, then the uptrend should be restored and the Ninja should head towards another test of 115.50.

GBP/USD

Current level - 1.3302

During yesterday's trading session, the breach of 1.3350 was confirmed and the Cable is now headed towards a test of the next support level at 1.3300. A breach of this support would boost the negative sentiment and pave the way for the pair towards 1.3200. In case the support level of 1.3300 manages to withstand the bearish pressure, then the pair would probably enter a correction phase, which should remain limited below the resistance level of 1.3500.

Technical analysis

The RSI is at the overbought zone.

The Stochastics is at the overbought zone.

Most likely scenario – BUY

Target prices: 1,802.14 1,808.71

Alternative scenario – SELL

Target prices: 1,790.84 1,786.19

Key levels

Support 1,790.84 1,786.19

Resistance 1,802.14 1,808.71

Daily Pivots: (S1) 1.1196; (P) 1.1213; (R1) 1.1226; More...

EUR/USD continues to lose downside momentum as seen in 4 hour MACD. But there is no sign of bottoming yet. Current down trend from 1.2348 should target 161.8% projection of 1.1908 to 1.1523 from 1.1691 at 1.1068 next. On the upside, break of 1.1373 resistance, however, will indicate short term bottoming and bring stronger rebound.

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) 1.3299; (P) 1.3327; (R1) 1.3348; More...

Intraday bias in GBP/USD remains on the downside and outlook is unchanged. Current down trend from 1.4248 should target 1.3164 fibonacci level next. On the upside, break of 1.3512 resistance is needed to indicate short term bottoming. Otherwise, outlook will stay bearish in case of recovery.

In the bigger picture, the structure of the fall from 1.4248 suggests that it's a correction to the up trend from 1.1409 (2020 low) only. While deeper fall cannot be ruled out yet, downside should be contained by 38.2% retracement of 1.1409 to 1.4248 at 1.3164, at least on first attempt, to bring rebound. On the upside, firm break of 1.4376 key resistance (2018 high) will add to the case of long term bullish reversal. However, sustained trading below 1.3164 will revive some medium term bearishness and target 61.8% retracement at 1.2493.

Daily Pivots: (S1) 0.9335; (P) 0.9348; (R1) 0.9372; More....

Intraday bias in USD/CHF remains neutral for consolidation below 0.9372. Another rise will remain in favor as long as 0.9248 support holds. Above 0.9372 will target 0.9471 key resistance next. Decisive break there will carry larger bullish implications. However, break of 0.9248 will turn bias back to the downside for 0.9084 support instead.

In the bigger picture, as long as 0.9471 resistance holds, larger down trend from 1.0237 (2018 high) could still extend through 0.8756 low. However, sustained break of 0.9471 will revive the case of medium term bullish reversal. In this case, we'd assess the change of retesting 1.0342 high at a later stage, by looking at the upside momentum first.

Daily Pivots: (S1) 115.26; (P) 115.36; (R1) 115.48; More...

Intraday bias in USD/JPY is turned neutral with current retreat. Further rally will be expected as long as 113.57 support holds. Break of 115.51 temporary top will resume larger up trend to 100% projection of 102.58 to 111.65 from 109.11 at 118.18 next. However, break of 113.57 will indicate that larger correction is underway, and targets 112.71 support next.

In the bigger picture, corrective decline from 118.65 (2016 high) should have completed at 101.18 already. Rise from the 102.58 is seen as the third leg of the up trend from 101.18. Next target is 118.65 high. This will now be the preferred case as long as 111.65 resistance turned support holds, even in case of deep pull back.

Daily Pivots: (S1) 0.7176; (P) 0.7193; (R1) 0.7206; More...

AUD/USD's break of 0.7169 support affirms the case that larger decline from 0.8006 is resuming. Intraday bias remains on the downside for 0.7105 support first, and then 0.6991 cluster support. On the upside, break of 0.7208 minor resistance will delay the bearish case and turn intraday bias neutral first.

In the bigger picture, with 0.6991 cluster support (38.2% retracement of 0.5506 to 0.8006 at 0.7051) intact, we're seeing price action from 0.8006 as a correction only. That is, up trend from 0.5506 low would resume after the correction completes. In that case, main focus will be 0.8135 key resistance (2018 high). Sustained break there will carry larger bullish implications. However, sustained break of 0.6991 will argue that the whole medium term trend has indeed reversed.