Currency markets are in holiday mode and will likely remain so until the middle of next week. The lack of data releases globally continued, although the second-tier data from the US continued to be positive.
The Case-Shiller House Price Index and US House Price Index releases rose as expected, while the Redbook activity report rose to 21.40% for December YoY, and the Richmond Fed Manufacturing Index and Dallas Fed Services Index both beat expectations.
Although Omicron cases in the US and Europe, amongst others, continue to surge, it has yet to make its presence felt negatively in economic data. With market activity much reduced for the holiday season, investors continue to price in a global recovery, hitting a minor bump, not a pothole. Europe’s restrictions will have a tail impact, but, for now, markets are overwhelmingly pricing in the latest variant as a milder incarnation, despite its easier contractibility.
The dollar index is barely changed at 96.15, marking four days of sideways trading. The US dollar still looks vulnerable to positive headlines on the virus front. Support remains between 95.80 and 95.85, with resistance at 96.30 initially.
Major currencies continue to tread water with EUR/USD at 1.1310, GBP/USD at 1.3435, USD/JPY at 114.80, AUD/USD at 0.7225, NZD/USD at 0.6810, and USD/CAD at 1.2820. USD/JPY and GBP/USD look the most interesting of that group. USD/JPY is grinding higher on rate differentials and a higher oil price, while sterling looks to be catching an Omicron tailwind as cases remain high but hospitalizations low.
Asian currencies have performed well this week, backstopped by a firm Chinese yuan. The Malaysian ringgit, Indian rupee, and Indonesian rupiah have all performed very well, receding Omicron fears that hot money moves quietly back into the 2022 global recovery story.