Sentiment Dives on Covid Woes, JPY Benefits

  • USDJPY
    (${instrument.percentChange}%)

New COVID Variant

The World Health Organization (WHO) warned of a new COVID-19 variant, called the B.1.1.529, which has been detected in South Africa and has large number of mutations.[1]

The news comes amidst a backdrop of heightened fears over the pandemic situation, especially in Europe, where Austria imposed new lockdown and Germany surpassed 100K deaths this week [2].

Flight to Safety

This caused intense risk-off mood and sparked a flight to safety and to the arms of safe-haven Japanese Yen, while sending Asia-Pacific stock markets and main commodity currencies lower.

The US Dollar - which also generally acts as a safe-heaven - cannot benefit, as COVID worries do net help towards a faster tightening of the Fed's monetary policy, a theme that has been the main driver of the greenback's advance lately.

USD/JPY

The pair has been having a good run over the last few month, mostly based on that factor, reaching its highest level since January 2017 (115.52), on Wednesday.

Today's risk aversion though, leads to a plunge of more than 0.5% and a test of 114.50, which opens the door towards the ascending trend-line from October's lows (113.70-58). As long as sentiment remains downbeat, the pair is vulnerable, but still, a larger decline towards its monthly lows (112.71) probably seems excessive at this stage.

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From a purely technical prospective, the move is already exacerbated and the 114.10-00 area may be able to provide some respite. Based on recent price action, a solid reaction higher would not be surprising, as has happened before, in the immediate aftermath of sharp drops.

If such a scenario plays out, the first key resistance is provided by the EMA100 (at around 150.00). Above it, the greenback will regain control and will be able to push for fresh multi-year highs (115.52), but that looks like a stretch for now.

Technical approach is on the background today though, as sentiment drives markets and the fact that it is a half-day for US Stock markets adds another spin to it, as caution is needed for lower liquidity.


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Nikos Tzabouras

Senior Market Specialist

Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.

With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.

References

1

Retrieved 26 Nov 2021 https://mobile.twitter.com/WHO/status/1464006046586974211

2

Retrieved 01 Dec 2021 https://www.rki.de/DE/Content/InfAZ/N/Neuartiges_Coronavirus/Situationsberichte/Nov_2021/2021-11-25-en.pdf

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