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German consumer confidence worsening into 2022, the euro is likely to drop

We can’t get away from the doom and gloom at a time of year which is supposed to be wonderfully happy. For the second year running Christmas is being ruined by COVID-19 and its Grinch-like variants. There seem to be enough turkeys in the shops and freezers and the energy crisis seems to be lessening, both of which were a worry in November, so hopefully, the current fear stories will dissipate into 2022. Whether or not the euro, pound, and other major G-10 currencies can appreciate against the US dollar is yet to be seen, but it seems very unlikely.

Morning Brief

Minutes from the December meeting of the Reserve Bank of Australia (RBA) were published, in which board members acknowledged that the omicron variant had introduced additional uncertainty, but thought it was unlikely to derail Australia's recovery.

Analysts predict the RBA will raise rates later than most other central banks. Prices of the AUDUSD are trying to drop, but support is building below 0.7100.

Oil futures and a correlation with commodity pairs like AUDUSD led to USDCAD selling off yesterday. 1.3000 is a high probability area for most sell orders as the current weekly trend is to the upside for now. Prices above the weekly 200 EMA and a higher high than the August 2021 swing high is also a positive. Though the technical structure could be a corrective ABC pattern. If oil prices rise, the Bank of Canada could be raising interest rates in 2022 alongside the Fed if slack is quickly disappearing in Canada's labour market. A weak Q1 GDP and a setback in services employment are forecast due to the rising disruptions from Omicron.

Today, the German GfK consumer confidence report was released, and it came in much worse than analysts expected. Over Q1 2022, EURUSD could trade at 1.11, before dropping to 1.10 in Q2 2022 as the euro will suffer from the ECB's inability to raise interest rates and lockdowns in the most important countries for the euro. The current price action looks to be forming a bear flag so a break of the monthly lows opens up the levels highlighted below.

The UK Prime Minister Boris Johnson says he is following the data "hour by hour" and warns the rules may still be tightened in the coming days. PM Johnson is fighting to keep his job and is now in a position where he can keep votes by not ruining Christmas or he can try and stop the spread of Omicron and save the NHS. As Omicron cases surge across the country, with hospital admissions spiking in London, the PM said the data is "under constant review" and the situation is "extremely difficult". Mr. Johnson said after a lengthy unscheduled cabinet meeting: "Unfortunately, we will have to reserve the possibility of taking additional measures to protect the public, public health, and our NHS." He added that ministers have not yet imposed any other restrictions but are considering "a range of measures to keep Omicron under control" and will not rule anything out. The pound has rallied for now but we’re still on the edge of a major economic collapse as the Bank of England are in a rate hike cycle as the country is potentially going to need economic support.

The forex heatmap is largely mixed, so no real risk on or off direction.

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