The markets are not moving, in the same manner, this week as they did last week. The volatility has been sucked out of the markets as we wait for data tomorrow and the FOMC next week. Trading ranges are being tested but there is no real follow-through. Reversion to the mean rather than trend trading is possibly the way forward today.
Citizens in England are advised to work from home and wear protective masks in all indoor venues. Only people vaccinated against COVID-19 or who recovered from the disease can enter nightclubs. However, the UK Health Minister said mandatory vaccinations are unethical and would not work on a practical level. As part of the government's "Plan B," Javid noted that the government's actions will prevent a lockdown around New Year and in January. Additionally, the secretary said booster doses of COVID-19 would likely protect people against the Omicron strain.
The GBPUSD took the announcement yesterday poorly and dipped below the trading range low. However, as reports come out that the severity of Omicron is possibly on par or less than that of Delta the price action quickly reversed back into the range. Looking at the current positive divergence between the Stochastic indicator and Cable’s lows we could get a bounce today if the DXY can continue falling.
The DAX is currently up 2.88% for the week but has started to print lower daily lows and lower highs. If the US markets were to rally this week to new all-time highs this could drag the likes of the DAX and UK FTSE100 up too. But there is a chance this week’s rally may have been set up for a sharp move lower if the 61.8% Fibonacci traders have their way.
15772 on the DAX is a crucial resistance level that needs to hold for the bears this week. 15975 would be the next deep retracement on the Fibonacci retracement levels.
According to Germany's latest data, the country's foreign trade balance decreased to €12.5 billion in October. Expectations had been for an increase to €13.4B and the previous reading was revised lower.
After the German trade balance news, the euro became the most offered currency that we follow. The yen has the top spot in terms of relative strength and is closely followed by the US dollar. The powers that be in the USA have come up with an extra $2 trillion in the debt ceiling so any potential bottlenecks from liquidity sources have started to be removed. More spending from the Biden administration will likely come in the form of the Build Back Better bill which is being pushed for resolution before Christmas. Assuming the CPI reading is in line with the current levels or higher, the Fed will be pushing for a speedier conclusion to their taper and tightening of monetary policy. Whereas the European Union and ECB are trying to come up with ways to keep everything as loose as possible.
This should weigh on the EURUSD for the near term. 1.3200 on the EURUSD is the most significant level and is acting like a magnet currently.
The rest of the London session is likely to be a slow affair until we get to the US Unemployment Claims data and then the US 30-year Treasury auction. Yesterday’s US 10-year notes auction was a damp squib but the signal from the market was one of more bullishness than bearishness. Which would usually translate to risk-off for equities. However, for the Nasdaq, etc. last night's close was near the day’s highs and not far off all-time highs. It feels like the market is in a wait-and-see mode for tomorrow's CPI data.