“Nu” Covid Variant Leads to Risk-Off Sentiment

  • GER30
    (${instrument.percentChange}%)

The GER30 gapped down on open today, as a risk-off sentiment prevails. The catalyst is covid-19 developments. In Europe, countries are starting to reintroduce restrictions to deal with rising infections. On Wednesday, Italy announced new Covid measures, and Germany narrowly avoided another lockdown, preferring to see if stricter Covid passport rules help alleviate the situation.

Moreover, concerns over a new Covid variant have added to the fears. The B.1.1.529, or "Nu", variant is spreading in South Africa and Botswana. According to Forbes, the Nu variant "has over 50 mutations in total with over 30 changes to the spike protein."


Source: www.google.com

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The Nu variant seems to be extremely aggressive. South Africa has had three waves to date. It looks as if the fourth wave has now started. Alarmingly, the 7-day average has spiked at an almost vertical rate of change. This, as opposed to the gradual increases at the start of the previous waves. Moreover, the frequency between waves looks to have narrowed significantly. Of concern, a case has been reported in Hong Kong after a person returned from South Africa. A number of countries have responded by restricting travel from ZA. However, one wonders if anybody else was infected on the flight to Hong Kong and if so, were they in transit? Clearly, there is a possibility for escalation.

The financial markets have reacted with capital reallocating into safety.


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The left chart shows the H1 gold chart, and the GER30 H1 is on the right. The GER30 gapped down and then plunged past the S4 pivot. At the same time, XAUUSD was bid up as capital rotated, with the gold price hitting the R3 pivot. S4 and R3 days are not the norm and indicate the volatility inherent in today's market moves. A sense of fear is present as market participants alter portfolios. However, the RSI of both instruments are heated, which skews the risk:reward profile. As such, entries may be better served by looking for pullbacks.

References:
forbes.com
cnbc.com

Russell Shor

Senior Market Specialist

Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.

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