· Nasty Omicron headline trashes risk sentiment
· Fed Chair Powell’s dovish comments knock Treasury yields lower
· US dollar underpinned by negative risk sentiment
USDCAD Open 1.2780-84, Overnight Range 1.2733-1.2811, Previous close 1.2738, WTI open $67.90, Gold open $1796.15
The Canadian dollar is trading wildly. Prices rise and fall erratically as traders react to contradictory coronavirus headlines and central bank comments with month end portfolio rebalancing flows adding to the chaos.
USDCAD bounced between 1.2727-1.2791 yesterday, and repeated the process overnight, trading in a 1.2733-1.2811 range. Headlines about the latest coronavirus mutation, Omicron, has traders bouncing between risk on and risk off.
Monday, sentiment improved after reports surfaced that the Omicron cases were not as severe as expected. Stocks rallied, the USD dollar retreated, and treasury yields were steady. That changed overnight with the UK Financial Times headline Moderna chief predicts existing vaccines will struggle with Omicron.”
Suddenly, no one wanted stocks, or other risk assets. Japan’s Nikkei 225 index led the major Asia equity indexes down, losing 1.63%, with the Hong Kong Hang Seng index a close second, falling 1.58%. Traders ignored modestly better than expected Chinese Manufacturing PMI data.
European equity traders followed the Asia lead and the major bourses are posting losses. US equity futures are are off their worst levels but still in negative territory.
The Federal Reserve released the text of Jerome Powell’s opening remarks to the Senate Committee on Banking, Housing, and Urban Affairs. He acknowledged the Omicron variant saying “The recent rise in COVID-19 cases and the emergence of the Omicron variant pose downside risks to employment and economic activity and increased uncertainty for inflation. Greater concerns about the virus could reduce people’s willingness to work in person, which would slow progress in the labor market and intensify supply-chain disruptions.”
US 10-year Treasury yields collapsed, falling from 1.562% yesterday to 1.421% overnight as analysts pushed back forecasts for US rate hikes from May to September 2022.
EURUSD rallied from 112.86 to 1.1372 before retreating to 1.1350 in early NY trading. Eurozone inflation was sharply higher than expected, rising 4.9% y/y (forecast 3.7%) and Core inflation at 2.6% y/y (forecast 1.9% y/y).
Traders ignored the data and focused on coronavirus news and month-end activities. The EURUSD technicals are bearish below 1.1500.
GBPUSD traded in a 1.3309-1.3369 band with prices tracking broad US dollar sentiment and underpinned by the drop in US Treasury yields.
USDJPY dove, dropping to 112.69 from 113.72 before climbing to 113.05 in NY. The drop in Treasury yields and Powell’s comments reinforced the bearish technical view following the move below 114.00
AUDUSD and NZDUSD dropped in Asia but are recovering those losses, in part because US equity futures are rebounding from the session low.
FX markets will be lively today with S&P Case-Shiller Housing data, Chicago PMI, and Consumer Confidence competing with Powell’s Senate testimony for attention.