Omicron and Euro! next target?

U.S. 10 Year Treasury yields at 1.43%

Market analyst – IFC Markets

“Moderna’s CEO: COVID-19 vaccines are unlikely to be as effective against the Omicron variant as they have been with other types.”

 This comment was enough to erase the earlier positive sentiment in the market. Despite all reactions in the market, we have to watch the other sectors and catalyzers as well, Central Banks! 

As market regulators, central banks always are important, and their decisions can change the market directions. Now we are in a very special situation. Inflation in Eurozone rose to its higher level in the past 30 years to put more pressure on European Central Bank to increase the rates. On the other hand, now the concerns about the fate of the Omicron variant brought more caution to the market, which means that central banks will think twice before making any further decision!

Eurozone inflation in the annual rate rose to 4.9%, and Core inflation likewise jumped to 2.6% in November. This is not what ECB policymakers like to see, as they were repeatedly telling that higher inflation is transitory, especially ahead of its December meeting. In line with employment data from Germany, that show great recovery continued by a larger-than-expected 34,000 to its lowest level since March last year. The German unemployment rate also eased to 5.3%. 

 

European Central Bank rate

 

Given these data and news, the Market risk increased with USVIX around 25. Now we can see the US 10-year bond yields also decreased sharply to 1.43% earlier today and increase the safe-haven demands. 

This sentiment, exactly when the market was pricing on an earlier rate hike in the first half of 2022, to see the three hikes by end of 2022. And now, expectations for the rest full 25 basis-point rate hike pricing on September 2022, versus July, which was expected until last week.

Before any news from Omicron’s last Thursday, the main driver of currency markets was traders’ perspectives on the Central bank’s speeds in their tightening policies to combat rising inflation without choking off growth.

And now, the central bank’s outlook will be important for investors. Holding current policies with no change will put more pressure on currencies, while Hawkish policies or planning to go towards hawkish policies from any central bank, will increase the value of that specific currency. Therefore, since for FED outlook changed to holding the current policy and waiting for a better time to announce the next policies, it will put more pressure on USD, which is the reason for the EURUSD chart’s bulls in the past two days. 

European Central Bank rate

Related post