Euro Gains Under Threat as US Dollar Recovers From Omicron News. Where to for EUR/USD?

[MongiIG]

EURO, EUR/USD, US DOLLAR, CRUDE OIL, AUD, CAD, NOK, NZD - TALKING POINTS

• Euro retraced some of Friday’s gains as the market takes stock
• APAC equities were weaker and Treasury yields recovered
• The Fed tightening timeline is moving. Will EUR/USD go lower?

The Euro gave up some of Friday’s gains against the US Dollar in Asia today. The tightening timeline for the Fed was pushed out and this had helped EUR/USD go higher. As the pace of the taper comes back in, so does demand for USD.

Markets return to normal liquidity today after a wild ride to finish last week.US Treasury yields recovered roughly a third of their losses from Friday.

Although there is a large degree of uncertainty around the impacts of Omicron, government policy in many countries is changing quickly. Japan has already moved to ban all foreign visitors from 30th November. Other governments are restricting travel to varying degrees.

Markets are reacting to the potential economic impacts of these rule changes. Reports from the South African Health Department have indicated that they are of the view that the health impact may not be as severe as previous strains.

Many countries are erring on the side of caution after the experience of the Delta strain wreaking havoc.

In Asia today, markets took a deep breath and unwound some of the severe risk-off moves seen on Friday. The perceived safe-haven currencies of the Japanese Yen and Swiss Franc weakened but remain at lofty levels compared to prior to the outbreak news.

APAC stocks were down on the day but have recovered from large early losses. The major equity indices across the region were weaker by less than 1%.

At the time of going to print, US futures were indicating a positive day for North America bourses.

Gold is slightly softer but crude oil was up over 5% at one stage in the Asian session, recovering from Friday’s 13% sell-off. The Norwegian Krone was the best performing currency as a result. The other commodity currencies of AUD, CAD and NZD were also firmer.

Looking ahead, Fed Chair Jerome Powell and US Treasury Secretary Janet Yellen are due to appear before the Senate. The market will be on tenterhooks for any fresh news on Omicron.

EUR/USD TECHNICAL ANALYSIS

EUR/USD made a low last week at 1.11861 which is just above the June 2020 low of 1.11682. These levels could provide support.

The rally on Friday saw EUR/USD cross above the 10-day simple moving average (SMA) but it remains below all other medium and long term SMAs. This might indicate that short-term momentum could be bullish bit longer term momentum potentially remains bearish.

On the topside, the previous highs and pivot points at 1.13741, 1.15245, 1.16694 and 1.16922 are possible resistance levels.

Chart created in TradingView

 

Written by Daniel McCarthy, Strategist for DailyFX.com. 29th November 2021