29.12.2021 12:53 PM
EUR/USD. "Black Swan" named Omicron

The EUR/USD pair continues the flat within a narrow price range, which is plunging slowly. Judging by the price dynamics during the past days, the pair is trading within the 50-point level, the borders of which are indicated by 1.1280 and 1.1340 marks. Traders did not risk going higher or lower – sellers and buyers alternately took the lead from each other, thereby narrowing the trading range. The pair actually moved by inertia, starting from the borders of the range. At the same time, market participants ignore rare macroeconomic releases. For example, there were quite good statistics from the US yesterday. But despite the positive publications, the US dollar was losing its position: buyers of EUR/USD were able to "pull" the pair to the level of 1.1334. And although the pair eventually remained within the range, yesterday was somewhat indicative. The narrow market operates by its own rules while ignoring classical fundamental factors.

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It became known yesterday that the index of manufacturing activity from the Federal Reserve Bank of Richmond rose immediately to 16 points, against the forecasted growth of 11 points. This is the strongest result since July this year. This indicator is secondary, as it comes out after other regional indices. Nevertheless, it still had to draw attention to itself amid an almost empty economic calendar, but traders actually ignored it.

Moreover, market participants ignored the US macroeconomic reports in the real estate sector. In particular, the housing price index rose to 1.1% against the expected growth of 0.9%. This indicator also showed the highest value since July this year. Investors were also pleased with the S&P/Case-Shiller 20 City Index, which measures the dynamics of housing prices in the twenty largest cities in the US. As a rule, this indicator has a limited impact on the market, as it is published after the main data in this area. But experts said that the methodology for its calculation is recognized as one of the best. It rose to 18.4% in November, but traders ignored this release as well.

All this suggests that the market is in a state of pre-holiday suspended movement. The EUR/USD pair follows the specified algorithm, trading automatically. On the one hand, this fact allows us to perfectly enter into purchases and sales. Over the past week, the pair has been steadily pushing off from the borders of the 1.1290-1.1340 range. On the other hand, the pair has its own "black swan" – Omicron. This new strain of coronavirus may push the pair out of the range, thereby strengthening the downward trend.

The fact is that the new "modification" of COVID-19 has provoked an unprecedented rate of coronavirus cases in Europe. Recorded cases are updated literally every day. Last Saturday, France was shocked that the daily increase in cases exceeded the 100 thousandth mark, while over the past day, this figure surged to 180 thousand. This is a new record for COVID-19 during the entire period of the pandemic. During the day, the coronavirus was detected in 100 thousand Spaniards and almost 80 thousand Italians. There are also alarming signals coming from other EU countries: daily highs were recorded in Switzerland, Greece, Portugal, and Denmark.

Against this background, Europe began to gradually take action. For example, France has announced stricter quarantine restrictions. From January 3, many residents will have to isolate themselves again. Nightclubs have already closed, and wearing masks has now become compulsory even on the street. And although the president of the French government did not introduce a full lockdown or curfew, many experts (in the field of virology) say that Paris will have to make an appropriate decision after the New Year. The number of cases infected by the virus is now doubling every two days, and after the New Year's celebrations, a "mega-wave" of new cases may occur.

Germany has also limited public events and closed gyms, swimming pools, nightclubs, and cinemas. Many other EU countries have taken similar measures. The service sector, which is in a leading position of the coronavirus attack, is under attack again. Moreover, it seems that quarantine restrictions in Europe will only get stricter in the future.

Coronavirus cases in the United States are also increasing. For the last two days, more than 200,000 daily infections have been confirmed across the country. However, the White House reacts somewhat differently to the current situation. In particular, US President Joe Biden ruled out the probability of a nationwide lockdown. Moreover, the country has reduced the recommended isolation time for people with asymptomatic coronavirus in half (from 10 to 5 days). It is expected that this measure will help to cope with the shortage of medical personnel. It shows here that the US government officials are focusing on the vaccine campaign. They also cite recent studies that show that Omicron is much milder than Delta, which dominated the United States until recently.

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This difference in approach favors the US dollar. In turn, the euro was under pressure from the "coronavirus factor" again. The current fundamental picture suggests that the pair may leave the range of 1.1280-1.1340 at least temporarily, heading towards the nearest support level of 1.1240 – this is the lower line of the Bollinger Bands indicator on the daily chart.

Irina Manzenko,
ইন্সটাফরেক্সের বিশ্লেষণ বিশেষজ্ঞ
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