After a rollercoaster week, stock futures rose early Tuesday morning after investors looked past the potential effects of the novel omicron variant. Investors are betting that the new COVID-19 strain may not cause as severe an illness as initially expected, as traders seek riskier currencies. A Chinese rate cut contributed to improved sentiment.
US Yields Surged Amid Market Optimism
As a result of edging higher for the fifth consecutive day, the US dollar index, which tracks the greenback against a basket of six other currencies, remains steady over 96.
With the Dow Jones Industrial Average rising more than 600 points, United States 10-Year Treasury yields recovered nearly all of Friday’s losses. This week’s only market-moving news will be Friday’s consumer price report, but even that may not cause significant changes in currencies.
Due to rising employment ads in November, the Aussie outperformed its peers in November. It is an indication that the job market is recovering strongly as virus restrictions are easing.
Also, the RBA did not modify its policy, but stated that Omicron would not derail the country’s economic recovery. Second, the currency was supported by market speculation regarding the central bank’s decision to taper off its bond-buying more quickly.
Another factor contributing to the risk-on tone was the People’s Bank of China (PBOC) lowering the cash banks must hold in reserve. With this latest move, the PBOC has released liquidity to support economic growth for the second time this year.
ZEW’s economic sentiment index fell to 26.8 from 31.7 points in November but remains higher than expectations of 25.1 points.
EUR/USD Hangs Near Its One-Week Low
Although German Industrial Production rose by 2.8% over the previous month, the euro is still under selling pressure.
Lack of momentum in EUR/USD favors bearish traders and suggests a further drop in the near term.
Thus, a subsequent fall below 1.12574 could trigger immediate support at 1.12235, and further declines would send the euro towards 1.12058.
Given prevailing negative momentum, the YTD low of November at 1.11855 remains a possibility.
Otherwise, if bulls regain control, a decisive move above the 50 EMA would spark a rally towards the 1.13820-mark into the 200 EMA resistance area.