The new covid variant has breathed new life into the forex market. The World Health Organization has warned of the need for travel restrictions, but policymakers, by and large, don’t want to be bitten twice by the same dog. To err on the side of caution is to minimize one’s greatest regret. The risk is that the uncertainty will not be lifted quickly but will persist, which would probably lower the volatility.

and European 10-year benchmark yields fell sharply ahead of the weekend. In the United States, the market has unwound some of its aggressive pricing of Fed policy. This is reflected in the corresponding decline in the short term. In Europe, the decline in the 10-year yield reflected slower growth / inflation, with its short end largely unchanged.

There are three areas in which market participants cannot be as confident as they were in the middle of last week. First, the odds of a Bank of England hike next month were diminishing and falling further at the end of last week. Second, an acceleration in the Fed’s tapering seemed increasingly likely given the strength of recent data and surging price pressures. However, the emergence of this new strain makes an aggressive rate hike campaign less likely. Third, the prospects for stronger global growth have diminished on the margins. This undermines risk appetite and weakens currencies which often seem to do better in phases of robust growth (eg the dollar block, Scandis and most emerging market currencies).

: The Dollar Index hit a new high for the year on November 24, slightly below 97.00. It was confined to a narrow range when US markets were closed on November 25 and sold on news of the new variant and the imposition of travel controls by several countries. The backhand was enough to bring the MACD down too wide a territory, although the Slow Stochastic was not and remains stretched. If we assume that a correction has started, a key question is what movement is being traced. A conservative but logical assumption is that the last boost, since November 10, is in play. The first target (38.2%) is close to 95.75, then the retracement (50%) is around 95 , 40. A break of 95.00 could signal another drop in the cent.

: Interest rate differentials and soaring delta variant cases had sent the euro close to $ 1.185 by the middle of last week, the lowest since July 2020. When news of the new variant broke, it which appears to be a short-lived rally raised the euro to close to $ 1.1325. The retracement (38.2%) of the decline since November 10 is close to $ 1.1340. A more formidable area of ​​resistance is in the $ 1.1375 to $ 1.1400 band. As was the case with the Dollar Index, the MACD is turning, but the Slow Stochastic is lagging behind. Initial support now sits near $ 1.1260. With the old and now the new variant, the accelerated inflation spurt that is expected to be reported next week may not be the fodder for the ECB that some were anticipating.

: We suggested the dollar was in a JPY113-JPY115 range. Earlier this month, it had briefly dipped below 112.75 JPY and caught up. Indeed, in the early part of last week, it was fraying the top of the range and trading slightly through 115.50 JPY. However, pre-weekend turmoil saw the greenback fall back to the lower end of the range (~ JPY 113.05). The trendline connecting the August low and the two November lows, found near 114.10 JPY before the weekend, has been determinedly eliminated. The MACD is falling but has never recovered from the drop from mid-October to mid-November. Slow Stochastic is returning to too large a territory.

: As the December short-term sterling futures contract improved, implying a less likely likelihood of the BOE rising before year-end, the British pound fell. The interest rate futures contract will start next week with a seven-day rally intact. The pound itself fell for six sessions and a new low for the year was set at around $ 1.3320 heading into the weekend. Here the MACD and Slow Stochastic are falling while being over-stretched on the downside. A move above $ 1.3350 would help stabilize the tone, but it takes a push above $ 1.3400 to be noticeable. On the downside, we continue to see a test risk on the $ 1.3165, the first retracement (31.8%) of the sterling rally since Mach 2020.

: Talk about trending currencies; the Canadian dollar fell for the fifth week in a row after a five-week rally. Net-net is little changed. The US dollar settled near CAD 1.2765 on September 17, between the Bank of Canada meeting and the FOMC. The greenback reached CAD 1.28 before the weekend before falling back to close to CAD 1.2760. There is little resistance on the chart until it gets close to CAD 1.29. As you might expect, momentum indicators are stretched and frayed the upper Bollinger® band (~ 1.2770 CAD). A breakout of the CAD1.2630-CAD1.2640 area must be significant.

: In the pre-weekend carnage, the Australian dollar approached a year-long low set in August at close to $ 0.7100. The Aussie, like the Canadian dollar, has streaked. Its four-week drop comes from a four-week rally. The move was underway before the announcement of the new variant. The next target is around $ 0.7050, the retracement (38.2%) of the rally from the March 2020 low (~ $ 0.5500). Below is the $ 0.7000 area, which hit the lows in September and October 2020. The MACD continues to move lower, while the Slow Stochastic has started to stabilize in the trough. The 25bp hike in the, which was fully expected, and disappointed those expecting a bigger move, did little to support the. Indeed, it was the worst performing major currency last week, losing about 2.5%, more than twice as much as the Canadian dollar and two-thirds higher than the Australian dollar. It also tested the lowest of the year set in August (~ 0.6800). A breakout would open the door for bigger losses, but the next support area could be in the $ 0.6760 to $ 0.6780 area.

: The peso was the second weakest currency in the world last week (after the), falling about 4.3% to a new low for the year. He had three strikes against him last week. First, emerging market currencies are generally out of fashion. The JP Morgan Emerging Markets Currency Index has fallen for 10 of the past 12 weeks. Second, the new variant and the dramatic reduction in risk saw the peso’s losses accelerate. Third, national considerations. AMLO’s appointment as head of the central bank from next year did not boost market confidence, which followed the Turkish debacle. In addition, domestic economic conditions have deteriorated. Data was softer than expected, including a downward revision showing a contraction of 0.4% instead of 0.2%. At the same time, the biweekly exceeded 7%. Ahead of the weekend, the dollar climbed to MXN22.1550, and although it fell, it found support above the previous session’s high (~ MXN21.60). Almost all emerging market currencies fell against the dollar (this was a notable exception. It gained about 0.5%). However, Mexico appears particularly vulnerable. The credibility of the central bank can be called into question. The economic challenge of soaring inflation and weak economic activity would appear to require budgetary support, in which AMLO shows little interest. In April 2020, the greenback hit near MXN25.7850, and the MXN22.47 area is half of its subsequent decline.

: Chinese officials appear to have expressed slight dissatisfaction with the forex market, warning of a one-way market and checking the positions of the props. Officials seem to think the banks are running out of dollars, while many outside observers, trying to reconcile the large current account surplus with little currency movement and stable reserves, think the big banks are ostensibly accumulating dollars. on behalf of officials (hence the discourse on furtive intervention). In fact, the one-way market has been broken. On November 16, the dollar was trading between CNY.3670 and CNY6.3965 and did not break out of that range. We suspect the risk of a bullish breakout in the dollar and initially see a move towards 6.42 CNY.