Market analysis

VIRUS Fights Back!

Over the past week, the market has reacted to the new VIRUS variant being traced in several countries. The 26th of November saw the largest reaction with many assets seeing an increased level of volatility.

For example, in a single day Oil prices declined by 12.60%, the EURUSD increased by 110 PIPs and the DAX declined by 5%. The high volatility and change in trend indicated a clear change in the risk sentiment of many traders due to the latest development.

The US Dollar Effect

The pressure on the US Dollar can clearly be witnessed when viewing the price action of individual pairs and the US Dollar Index. The currency at times has been used as a safe haven currency but this cannot yet be backed by the current price action.

In addition to the market sentiment, the Federal Reserve also released its statement which commented on the economy and the threat of the new Virus Omicron Variant.

The Chairman of the Federal Reserve believes that the increase in the incidence of the new strain of the coronavirus creates a higher level of risks for employment and economic activity in the country, as well as increases uncertainty about inflation.

Employment Sector:

The employment sector’s recovery as well as the level of inflation has been one of the key reasons for the US Dollar increases in recent months.

The market is also not persuaded by the latest comments from members of the US pharmaceutical industry. The CEO of Moderna, Stephane Bancel advised that existing vaccines are likely to be less effective against the new mutation and will take at least several months to develop new effective medicines.

In turn, the CEO of Pfizer Albert Bourla said that his company has already begun developing a vaccine against the omicron strain virus and advised it can be created in 100 days.

The market will be monitoring the number of cases and how governments react. For example, lockdowns and harsher restrictions can lower the demand for the currency and US-based assets. In addition to this, the market will be evaluating if the latest development is likely to escalate and pressure the employment sector as well as the monetary policy.

Virus Effect Over Oil Price

The pressure of Oil is similar to that of the US Dollar; the new variant, lockdowns, and restrictions of feared to lower than demand. Further pressure can arise if the asset sees the level of demand take a strong hit, especially if the supply is not reduced to match the current level of demand. Meanwhile, traders are awaiting a meeting of the OPEC countries.

In the light of current events, representatives of the group may well reverse their decision to increase the production by 400K barrels per day or reduce it, but the market will need to wait for an official confirmation.

During the day (Wednesday), a weekly report on the number of oil reserves in the US will also be issued. The latest announcement confirmed the figure rose by 2.3 million barrels. The figure is now predicted to decline but if the supply continues to increase this may put new pressure on energy prices.

The Virus and The Equities Market

The equities market such as the SNP500, NASDAQ and DAX have also been affected by the viruses attempt to fight back, however, the level of volatility in the equities market can be much less than traditionally seen with Oil.

Despite the fact that President Joe Biden advised the US to do not to plan to close the borders, investors are afraid of the introduction of new quarantine restrictions that could negatively affect businesses already hit by the pandemic.

There are also concerns as to whether this will also affect the employment sector and disrupt the supply of goods/services. Without a doubt, we can see other regions’ indices have been more strongly affected. For example, European indices have seen larger declines as the governments take harsher action against the rise in cases and new variants.

The question remains as to whether the price will deteriorate in the longer term. This will largely depend on the risk appetite of the market as the stock market is also largely correlated with the market’s risk appetite.

In addition, to this, the market will continue monitoring the latest developments and influences which have been mentioned throughout the article. These influences can include both technical, fundamental as well as sentiment elements of the market.

The subject will be continued on our coming webinars!

Disclaimer: This article is not investment advice or an investment recommendation and should not be considered as such. The information above is not an invitation to trade and it does not guarantee or predict future performance. The investor is solely responsible for the risk of their decisions. The analysis and commentary presented do not include any consideration of your personal investment objectives, financial circumstances or needs.


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