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Omicron variant exerts pressure on EUR/USD

The EUR/USD pair is further trading flat within the price boundaries at 1.1200-1.1350. At the end of November, bears updated the annual low of 1.1186, but failed to consolidate near 1.1100. Bulls took advantage of this situation, however failed to consolidate above 1.1300. Consequently, traders remained on neutral ground, around 1.1200. Sellers and buyers are alternately pursuing only their own interests. Sellers are trying to overcome the level of 1.1200, while buyers are keeping climbing the upper boundary of the above price range. However, at the moment the pair consolidated in the 150-point wide range, showing weak reaction to the current news flow.

This week's economic calendar lacks events. The main macroeconomic releases will be published on Wednesday and Thursday. US Consumer Confidence index, growth rate of initial jobless claims, durable goods orders, the Core Personal Consumption Expenditures Index and US primary market home sales will be issued tomorrow or the day after.

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Currently, the market has to react to other fundamental factors, which are somehow related to the Omicron variant. Notably, the situation is still ambiguous as experts are still unable to reach a consensus on this coronavirus variant. Just yesterday, the head of the World Health Organization Tedros Ghebreyesus commented on the matter. According to him, the new COVID-19 variant is spreading considerably faster than the Delta variant, as well as poses a serious threat to people who have been vaccinated and have had the virus. However, he did not mention that the Delta variant is much more severe than the Omicron variant and is more likely to result in hospitalization or even death. Meanwhile, the media increasingly state that the new variant could become almost a pandemic salvation due to milder COVID-19 symptoms. In particular, this opinion was voiced by WHO Representative in Russia Melita Vujnovic. She noted that the clinical picture of infections caused by the Omicron variant is not as serious as of infections from the Delta variant. Vujnovic warned that in case the Covid-19 pandemic is subdued, the coronavirus will still stay. However, it will become endemic like the flu.

These controversial issues have disoriented the market. In other words, the Omicron variant began to exert its influence locally, affecting currencies in different ways. To be precise, traders are primarily concerned about the reaction of the authorities and the possible economic consequences of the next wave of the coronavirus pandemic, while the increase in the number of infected serves is considered less relevant. For example, until countries began to tighten Covid-19 restrictions, coronavirus outbreaks in Europe were of little concern to the foreign exchange market. First, these outbreaks were local. Secondly, these restrictions mainly affected unvaccinated people and produced little effect on economic processes.

With the advent of the Omicron variant, the situation has changed dramatically. Authorities in some countries, for example Austria have tightened the Covid-19 restrictions for both unvaccinated and vaccinated citizens. The UK has followed suit, putting pressure on the pound. The Netherlands began a new strict lockdown last Sunday, which will continue until mid-January at least. All stores, except for groceries and all entertainment venues were closed in the country. The local residents were advised to stay at home if possible. Italy and Germany are also considering imposing similar restrictions. However, the United States does not intend to tighten quarantine rules, despite the fact that the Omicron variant was detected there in 73% new Covid-19 cases during the week.

Notably, in case Italy and especially Germany take a decision to follow suit of the UK and the Netherlands, the euro will be under additional pressure. Rome and Berlin are still considering this issue. They will most likely make the key decision after Christmas.

However, even if the pressure on the euro increases, the EUR/USD pair is unlikely to move below the lower boundary of the established (since late November) range of 1.1200-1.1350. These boundaries correspond to the upper and lower lines of the Bollinger Bands indicator on the daily chart. In the medium term, the pair will most likely fluctuate between these indicator lines amid low liquidity, the pre-holiday rush and a half-empty economic calendar. Therefore, when approaching the upper boundary of the range it is advisable to consider short positions, when climbing the lower boundary it is recommended to focus on long positions respectively.

The material has been provided by InstaForex Company - www.instaforex.com

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