The Week Ahead – Markets Fly To Safety As New Variant Looms

EURUSD slides as Europe battles fifth wave

The euro plunges as the pandemic situation worsens across the continent. A record rise in covid cases has prompted Austria and Germany to consider imposing another round of lockdowns, with others to follow suit.

Now that Europe accounts for half of global cases and deaths, new restrictions mean that the economy is unlikely to exit the stop-and-go mode any time soon. Without seeing the light at the end of the tunnel, the ECB would be one of the last major central banks to lift its stimulus.

The euro is testing July 2020’s lows near 1.1200. A rebound could be an opportunity to sell into strength. 1.1450 is the closest resistance.

USDCAD rallies on hawkish Fed minutes

The US dollar rallies on speculation that the Fed could raise interest rates sooner than anticipated. The Fed’s latest meeting minutes signaled policymakers’ willingness to hike if inflation remains stubbornly high.

Every data point from now on could be a buildup to the path of normalization. And the upcoming nonfarm payrolls are no exception. A solid employment reading would raise bets that the US central bank may speed up tapering way ahead of its peers.

The long US dollar has become an overcrowded trade. A break above 1.2900 may trigger a bullish reversal beyond 1.3400. 1.2500 is a support in case of a pullback.

SPX 500 falls over new covid variant

News of a possibly vaccine-resistant coronavirus variant sent stock markets lower. Investors fear that the new strain could render massive vaccine campaigns irrelevant and derail the recovery. Nonetheless, it’s important to note that little is known about the new variant.

Markets have been looking for a reason to sell amid record-high valuations and the virus could just fit that role. Fundamentally, things have not changed though. Current recovery momentum and robust corporate profits may offer support once news-driven selling fades.

The S&P 500 is dropping from the all-time high of 4720. 4400 is a major support to maintain the uptrend.

USOIL tumbles as supply may exceed demand

WTI crude plummeted on the concern of a new variant detected in South Africa. The prospect of another round of travel restrictions and Europe-like lockdowns may seriously affect the demand.

The news could not have been of better timing as the US orchestrated a coordinated release of strategic reserves to tackle price pressures. Now that major consumers are at odds with producers, traders are awaiting a response from the OPEC+ meeting this Thursday.

Oil prices could find support if the cartel signals a pause in output increases. The psychological level of 70.00 is the next support. 79.00 is a fresh resistance.