After a strongly positive session yesterday the FTSE100 managed to put in its best one-day performance since July, closing at its best level this week, along with the DAX which closed just shy of the 15,500 level.
Yesterday’s bullishness came despite concerns that the surge in Delta variant cases is straining the German public health system to breaking point, with investors choosing to focus on comments by a WHO official who said that new vaccines for the Omicron variant were unnecessary, and that infections so far have been mild, which helped reinforce the more positive narrative that we saw yesterday.
The gains were widespread across Europe despite continued reports of new cases of the Omicron variant coming in from across the continent, as well as in the UK.
US markets also picked up the positive baton, boosted by a solid November ADP number, and a solid ISM manufacturing report, however while yesterday’s gains were solid, given recent price action there was always this feeling that any gains might not be particularly durable, or susceptible to negative headline risk.
Sentiment has seesawed considerably over the past few days, and while it is universally acknowledged that cases of the Omicron variant are likely to spread, it surely can’t have been too much of a surprise to anyone that cases would soon start to be reported in the US.
However, judging by the US market reaction to the first reported case of the Omicron variant in California, which sent US stocks straight back down again, it is somewhat surprising as to why this would be a surprise to anybody.
With cases being reported everywhere it was only a matter of time before the US got its first case, so for US markets to react in the way they did yesterday is a little bit surprising, though given how fickle sentiment has been recently maybe we shouldn’t be.
Even so last nights US reaction does seem a little over the top given that thus far there is no evidence at all that while it may be more transmissible it certainly isn’t more virulent.
Nonetheless, yesterday’s market reaction gives a flavour of how fickle and fragile sentiment currently is, despite the various reassurances from the likes of the WHO, as well as many of the vaccine companies, including BioNTech and Oxford University who came up with the AstraZeneca jab.
While stock markets continue to fluctuate between hope and fear, bond markets are also chopping around in anticipation of what the Federal Reserve’s next move on monetary policy might be.
Against this backdrop it is then perhaps not surprising that we’re set to see a negative European open later this morning, as the bulls and bears continue to do battle.
EUR/USD – still have resistance at the 1.1385 level, with larger resistance at the 1.1420 area. The key support remains around last week’s lows at 1.1185, as well as the 1.1160 level. A move through 1.1420 argues for a move back to the 1.1520 level.
GBP/USD – found support at the bottom of the channel below 1.3200. Support remains around the 1.3160 area, which should act as a floor. We need to recover back above the 1.3400 level to stabilise and move towards the 1.3500 level.
EUR/GBP – running into resistance at the 0.8540 level, which is trend line resistance from the September 2020 highs. Found support at the 0.8480 level and needs to break below this level to diminish the risk of further gains.
USD/JPY – currently has support at the 112.50 level, however its currently struggling below the 114.00 area, keeping the risk of further losses on the table towards the 111.80 area.