Gold 1791,885
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EURUSD 1,131
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DJIA 34647
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OIL.WTI 68,195
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DAX 15316,95
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A new strain of coronavirus Omicron, which sent market participants fleeing risk en masse on Friday, collapsed the dollar index. But not for long. Already on Monday some of the losses were bought back. Does this mean that the Dollar Index (DXY) will now return to growth?
DXY
This time, running away from risk, investors have chosen gold and the Japanese yen as safe haven assets. The dollar has been abandoned. However, already today there is a redemption of the bottom on all fronts.
It is still difficult to say how durable the current recovery will be. The fundamental backdrop looks very turbulent due to the fact that little is yet known about the new Covid-19 Omicron.
Many countries have now restricted flights and are prepared to impose stricter containment measures if necessary. This, in turn, threatens the global economy with a slower recovery.
In such a situation, the Fed is likely to postpone plans to tighten monetary policy. It is these expectations that have sustained the month-and-a-half rally of the US currency. If the tone of the central bankers begins to soften, the dollar will come under pressure.
From a technical point of view, the dollar index reached a strong mirror resistance level at 96.50. If the fundamental background remains unfavourable now, it will be difficult to break this level and the DXY is likely to correct. The downside target would be the 95.50 area, and if it is broken, 94.50.
If, however, the incoming data on the new strain shows that it does not pose a new level of danger, all of Friday’s fall could be bought back and the rally will continue.
On the subject of the Omicron strain virus, it is worth remembering that the US labour market report is due this week. We remember that the Fed members relied on it in assessing their willingness to tighten monetary policy.
There is no telling what will happen with the coronavirus, but it may come back to Friday’s jobs report and play either plus or minus for the dollar.
What are the possible outcomes here? Bad news on the threat of a new strain and a weak report will lead to a collapse of the American currency. A strong report and relatively neutral news on Omicron, on the other hand, might support the DXY. And what if the news are mixed? It will depend on what investors keep in focus here.
14.30 Canada’s third quarter GDP
16.00 Conference Board US Consumer Confidence Index for November
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