The markets are reacting to headlines, so there is a lot of uncertainty in the markets currently. It is best to wait for clear levels of support and resistance to break and then get tested before being too aggressive with the trades.
At 5.10 am this morning news came through from Moderna which stated that they predict the existing vaccines will be much less effective against the Omicron variant. On this news alone the USDJPY fell from 113.50 to 113.00 before pausing as we waited for the London session to open.
While we have little evidence of whether the virus is more deadly, more infectious, more treatable, etc. the headlines are being used by traders and their algos to go hunting for liquidity. The EU drug regulator chief said that lab tests for whether approved COVID shots work against the Omicron variant will take around two weeks to determine and that any changes necessary to the drugs would take 3-4 months. The sentiment and fundamentals coming from the economic news are putting a bearish, risk-off, mood in the markets, but there will be investors looking to buy these dips whilst there is a lot of uncertainty in the markets.
The seasonally adjusted German Unemployment change came in worse than expected this morning.
Analysts had been predicting -25.0k more unemployed people, so the -34.0k although is in line with the last few month's averages and below last month’s figure, it is still a worry. This morning the German Constitutional Court rules that the COVID-19 “emergency brake” lockdown is lawful, so as we come to the end of 2021, the unemployment figures are quite likely to increase rather than decrease.
The EURUSD is rebounding from the year's lows and has breached the dynamic resistance of the daily 20 EMA. There is a lot of resistance from the market structure up at 1.5350, so we could be in for a bear market rally this week.
The GBPUSD is also rising this morning and has successfully taken the resistance level printed yesterday that I said could be a liquidity zone. For now, I am expecting an acceleration higher to test the daily swing high at 1.3512 now that price action is out of the descending channel and making higher highs and higher lows on the smaller time frames.
In today’s calendar, there will be Canadian GDP, US Chicago PMI, and Fed Chair Powell along with US Fed’s Williams and Clarida talking.
The VIX is rising so I am expecting the riskier assets to have range expansions on spiky moves today. The US dollar index is also dropping so a change in trend across the forex majors could happen today too.
As more uncertainty and lockdowns are announced the more likely we are to see a downturn in the energy markets, especially Brent and WTI crude oil. The double bottom market structure at $64.50 per barrel on the Brent contract looks like the most logical target for traders to short.