FX Commentary – Will Omicron Clouds Outlook For Rate Hike?

Market Talk

– The US dollar was up on Monday morning in Asia after news of coronavirus variant potentially resistant to current vaccines had sent investors dashing for the safety of the Japanese yen and the Swiss franc, while traders also took profits after an extended rally in the U.S. dollar last Friday.

– Treasury yields slumped as investors rushed toward safe-haven assets after new cases of the omicron variant were found in the Netherlands, Denmark, and Australia over the weekend, even as more countries imposed travel bans stalling global economic growth.

– While the dollar stands to benefit from the uncertainty because of its status as a safe haven, Omicron clouds the outlook for when the Federal Reserve – and other global central banks – can raise interest rates countering the US dollar benefit from this new COVID-19 variant.

– The safe-harbour yen, which had been the biggest beneficiary of the flight to quality, weakened to 113.60 per dollar. The Japanese currency surged as much as 2% at one point on Friday. Fellow haven the Swiss franc sank 0.45% to 0.9257 per dollar.

– Gold was up on Monday morning in Asia, with concerns over the impact of the possibly vaccine-resistant omicron COVID-19 variant giving the safe-haven yellow metal a boost after rising more than 1% last Friday.

Chart Focus EUR/USD

Key Points

1. Buy EUR/USD recommendation.

2. Buy EUR/USD at 1.1260. Stop at 1.1225 and profit target at 1.1370

3. A slump in US Treasury yields and spread of the new variant may counter the Fed from raising interest rate.

4. Price is likely to be supported by the 20EMA, with MACD and 20EMA both hinting at a bullish price trend

Fundamental Comments

1. A slumped in US Treasury yields as investors rushed into safe havens is likely to weigh on the US dollar.

2.  Omicron variant may counter the Federal Reserve from raising interest rate, weighing on the US dollar.

Technical Comments

1. Price is likely to be supported by the 20EMA, which is also hinting at a bullish price trend.

2. MACD has turned bullish and is hinting at a bullish price trend.

Key Levels


Technical Overview

USD/JPY – After a rally to a high of 113.88 this morning, price has declined below last Friday’s low at 113.04. We are likely to see this decline continues to the previous low at 112.72 in the next couple of days. Stochastic has a bearish crossover near the overbought zone and is moving lower, hinting at a price decline. MACD and 20EMA are both bearish and hinting of a price decline as well.


USD/CHF – We had a sell call last Friday at 0.9315 but price did not reached this high and our entry order was not filled. Price declined to a low of 0.9196 last Friday. Stochastic has a bullish crossover in the oversold zone and is moving higher, hinting at a price rally. However, MACD and 20EMA remains bearish. Price is likely to be capped at 0.9285 and we could see another decline to test the previous low at 0.9196 over the next couple of days.


GBP/USD – Price had reached a low of 1.3278 on Friday and the low was accompanied by a divergence warning from the MACD indicator. Stochastic is also rising and moving higher but 20EMA is hinting of a bearish price trend. We do not think price has hit a low but rather we continue to see price making a new low for today. If price is unable to move above 1.3360, we are likely to see a low that is lower than 1.3278.


XAU/USD – Price had reached a high of $1815.45 on Friday as a result of a flight into safe havens. However, price has declined to a low of $1770.73 this morning. The low was also accompanied with a divergence warning of a potential low from the MACD indicator. Stochastic continues to move lower while 20EMA is bearish and hinting of a bearish price trend. We think price may have hit a low and a reversal is likely.


USD/CAD – We had a buy order that was filled last Wednesday at 1.2670. We had left stop loss order at 1.2670 and profit order at 1.2745 last Friday. Our profit order was filled at 1.2745 last Friday. We made 75 pips from this trade. Price may have reached a high at 1.2800 and we could see a price correction back to the 20EMA at 1.2715. MACD remains bullish but Stochastic could be moving lower after a bearish crossover.


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