Overnight Headlines

*Asian markets mixed as Omicron worries leave investors on edge

*US health officials find first US case of new variant

*USD erased losses after news of arrival of Omicron in the US

*US stocks reversed solid gains and closed sharply lower

USD benefitted from the cooler risk mood as investors grew more cautious on the Omicron news. The DXY initially fell to a low of 95.68, before closing marginally higher at 96.00. G10 currencies were generally lower on concerns of the potential economic fallout and risk aversion.  Most majors had “inside days” meaning the range held inside the previous day’s range. This is logical after such a wide-ranging day on Tuesday. JPY led the gains though the major is trading above 113 this morning.

US equities turned a rebound into a more serious risk-off session with news of the first Omicron case being detected in the country. Growth and reopening plays reversed their earlier gains. Most sectors sold off with the Nasdaq hurt the most, falling 1.8%. The Vix shot higher, closing north of 30. This is the highest implied volatility since January. Asia is directionless currently, though US futures are set to open firmly positive.

Market Thoughts – OPEC+ set for decisions

Oil markets are looking to the OPEC+ meeting today for any comforting signs after the plunge in prices since news of the Omicron variant broke last week. Brent has fallen over 20% since hitting highs in October at $86.68. The cartel will decide if it proceeds with the planned 400k barrels per day production increase in January.

The group has consistently taken a cautious approach since the initial outbreak of the pandemic, so a pause in current supply increases is highly possible. Oil experts suggest the threat to oil demand from travel bans and increased restrictions could see a loss of 3% of the global total, in the first quarter of 2022.

Chart of the Day – USD/CAD edging near to the highs

CAD losses for the week have mainly come from falling oil prices (and the drop in its yield advantage on the crosses). Tuesday’s Canadian GDP figures surprised hugely to the upside with the economy being only around half-a-percent below pre-pandemic levels. This suggests the BoC will be hiking in springtime next year. But the Fed is set to do the same so gains versus USD may be tough.

USD/CAD has been in a tight ascending bull channel since the October lows below 1.23. The series of higher highs and higher lows has taken us back to the summer peaks above 1.28. Resistance is the July high at 1.2807 ahead of this week’s high at 1.2836 and then the spike highs. The daily RSI is overbought with support sitting 1.2712/20.