The US dollar and other safe-haven currencies gained yesterday and today in Asia. In contrast, the risk-linked ones slid alongside the equity market, following headlines over a new, possibly vaccine-resistant coronavirus variant.
As for the calendar, there are no top-tier data, but it is worth mentioning that it is “Black Friday” around the world, with consumption having the potential to boost upcoming retail sales data.
Safe Havens Rally, Risk Assets Tumble on New and Stronger COVID Variant
The US dollar traded higher against the majority of the other major currencies on Thursday and during the Asian session Friday. It gained versus AUD, NZD, CAD, and GBP in that order, while it lost ground versus JPY, CHF, and EUR.
The picture in the FX sphere points to market sentiment deteriorating at some point during the day or today in Asia. Indeed, turning our gaze to the equity world, we see that most EU indices traded in the green, but today in Asia, investors abandoned stocks, with the four indices under our radar falling on average 1.78% each.
Wall Street stayed closed in celebration of Thanksgiving Day, but the futures market points to a decent negative gap at today’s opening. At this point, it is worth mentioning that Wall Street will close early today.
Yesterday, we noted that European shares might stay under pressure for a while more, and we stick to that view. We believe that the increasing COVID cases and the new measures around the bloc will keep investors concerned over the future performance of the Euro-area economy. In our view, yesterday’s rebound was just a short-covering bounce.
With news later in the day pointing to detecting a new and possibly vaccine-resistant variant, we see the case for another slide, perhaps as early as today. After all, Asian markets suffered their sharpest drop in two months overnight due to that.
The only market for which we will alter our view, for now, is the US stock market. Remember that, despite the increasing expectations over a potential Fed hike mid-next year, we have been saying that Wall Street could climb towards new highs if economic data continue to suggest that the US economy is performing better than other major economies. However, the announcement of a possibly vaccine-resistant coronavirus mutation could spark fears there as well and result in a decent lower correction.
As for the currencies, we stick to our guns that the US dollar will perform very well, but now, with investors seeking shelter to any safe-haven asset, we would expect the yen and franc to benefit as well. At the same time, the risk-linked currencies Aussie, Kiwi, Loonie, and even the British pound, could stay under some selling interest. We believe that monetary policy divergences will take the back seat for now. At the same time, the strategy of each central bank could even be altered in the foreseeable future if the COVID situation worsens.
NIKKEI 225 – Technical Outlook
Japan’s Nikkei 225 cash index tumbled overnight, breaking below the critical support zone of 28973, marked by the low of Nov. 10. The move confirmed a forthcoming lower low on the daily chart and signaled the exit of the sideways range the index had been trading within since Oct. 29, between that barrier and the psychological zone of 30000.
In our view, the bears could soon aim for the 28465 territory, which stopped the index from moving lower between Oct. 21 and 28. The break could extend the fall towards the 27990 area, which strongly supported between Oct. 8 and 13. If that barrier cannot halt the slide either, then we may experience extensions towards the low of Oct. 7, at 27575.
To start examining the bullish case, we would like to see a recovery above the round number of 30000. This will confirm a forthcoming higher high on the daily chart and may allow advances towards the 30400 zone, marked by the high of Sept. 27. If the bulls are unwilling to stop there, we could see them aiming for the 30645 hurdle, or the 30800 zone, defined by the highs of Sept. 16 and 14, respectively.
AUD/JPY – Technical Outlook
AUD/JPY fell sharply as well, breaking below the 82.10 level, which is near the low of Nov. 19, thereby confirming a forthcoming lower low on both the 4-hour and daily charts. Overall, the pair remains below the downside resistance line taken from the high of Nov. 4, and thus, we would consider the short-term picture to be negative.
We expect the bears to challenge the 81.35 level soon, which provided resistance back on Oct. 5 and 6, the break of which could extend the fall towards the low of Oct. 6, at 80.55. Another break, below 80.55, could pave the way towards the low of Oct. 1, at 79.90.
On the upside, we would like to see a break above 83.35 before considering a bullish reversal. This would confirm the break above the aforementioned downside line and a forthcoming higher high. The rate could then travel towards the 84.15 or 84.50 zones, marked by the high of Nov. 16 and the inside swing low of Nov. 3. If neither zone can stop the bulls from climbing further, we could see them targeting the high of Nov. 4, at 85.20.
As for Today’s Events
The holiday shopping season officially starts with “Black Friday” sales around the globe. Although we will not get any instant numbers over how strong consumer spending was, we will closely watch the upcoming retail sales data.
We don’t have any top-tier data releases on today’s agenda, but we will get to hear from ECB President Lagarde, as well as by ECB members Panetta and Schnabel.