Markets in Turmoil amid New Omicron Threat

Fed Chair Testimonies and NFP

Friday the Euro made notable advances against the US Dollar, on the back of the fears triggered by the new coronavirus variant, Omicron. However, on Monday the greenback erased some of the losses and recovered against the single currency, as the pacing of the monetary stimulus tapering took center stage once again, boosting dollar demand.

The uncertainty that surrounds the impact of the new Omicron threat will likely generate increased volatility as governments are quickly imposing new safety measures. Japan has already decided to ban foreigners from entering the country starting November 30, and other governments will probably impose similar measures, which will cause market turmoil.

Key Events for the Week Ahead

Fed Chair Jerome Powell and Treasury Secretary Janet Yellen will testify twice this week, before the Senate Banking Committee and before the House Financial Services Committee, on the topic of the CARES Act. The testimonies take place Tuesday at 3:00 pm GMT and Wednesday at the same hour and can lead to heavy volatility because the Committees’ questions are not known in advance, thus the answers are not scripted.

Friday, December 3 at 1:30 pm GMT, we take a look at the always-important jobs situation in the United States, with the release of the Non-Farm Payrolls report as well as the Average Hourly Earnings and Unemployment Rate.

The Fed made it clear that the pace of the monetary stimulus tapering is tightly correlated to the job market situation, thus the release of the NFP almost guarantees volatility. The expected number is 528K, very close to the previous 531K.

Chart Analysis – EUR/USD

The pair is currently hovering around 1.1260 with an overall bearish bias but from a short-term perspective, the Euro made a notable recovery at the end of last week. The combination of 1.1200 – 1.1175 support zone and the oversold condition of the Relative Strength Index triggered a bounce that is likely to take the pair into the resistance zone represented by the lower border of the diagonal channel seen on the chart.

If the pair successfully moves back into the channel, then the next destination will possibly become 1.1400 – 1.1430 but this area acted as resistance back in mid-2020 and it wasn’t of much importance when price last visited it (November 15, 2021).

Once the current bullish move is complete, the dollar is likely to bring the pair into 1.1175 support but the week ahead is filled with high-volatility events that may trigger erratic movements, thus caution is advised.