November 29, 2021 15:42:20

It’s obviously unwise to be putting a lot of risk to work in the current environment. We are back to being amateur epidemiologists, or more likely watching and listening to the wires for any concrete clarity about Omicron.

Risky assets are rebounding after the shocking selloff on Friday. Global equity markets hadn’t moved more than 1% in either direction for six weeks. So, the shakeout was violent with holiday-thinned liquidity exacerbating price action. We need to watch how different countries/governments approach restrictions. A known known should be that price pressures will inevitably increase, along with volatility.

EUR/USD eases oversold conditions

One currency that enjoyed Friday at least was the euro and we certainly got an unwinding of recent momentum trades. The collapse in commodity prices also offered support to EUR, relieving the notion of the current energy crisis on the continent.  

Seasonal trends for the US dollar are also negative with the euro enjoying its strongest gains in December when looking back over the last two decades. There may also be a slowdown in the buying of the greenback that we have seen in recent weeks. This was on the back of the Fed potentially tapering faster and hiking interest rates sooner.

We noted last Monday that the single currency was oversold. The recent breakdown through 1.1513 was tapping the lower Keltner band. The daily RSI was also overbought, dipping into extended territory for a second time towards the end of last week. We highlight again the long-term downward trendline going back to the July 2008 high that has so far acted as support.

But the overall picture remains negative with the failure to hold above 1.13, where a long-term Fib level sits as well, pointing to more falls. If that long-term trendline does give way in time, the cycle low sits at 1.1186. Near-term resistance is 1.13 and 1.1372/74.