The US is to impose travel restrictions on eight southern African countries in response to the new Covid-19 variant, said a government official cited by Reuters. The new travel restrictions will bar most foreign nationals from the US who have been in those countries within the last 14 days, the official said and will take effect on Monday.

The travel restrictions will be for South Africa, Botswana, Zimbabwe, Namibia, Lesotho, Eswatini, Mozambique and Malawi, the official said, adding that the new travel restrictions are being put in place out of an abundance of caution. The restrictions do not apply to US citizens and lawful permanent residents, the official said, adding that the US may add additional countries to travel restriction list if variant spreads.

  • EUR/GBP spiked towards 0.8500 on Friday as markets were rocked by the latest Covid-19 developments.
  • The pair benefitted from a moderation of global central bank rate hikes.

EUR/GBP saw sharp upside on the final trading day of the week, surging from close to the 0.8400 level to print session highs near 0.8500. As trade draws to a close for the week a little earlier than usual thanks to the US Thanksgiving holiday weekend, the pair is trading in the 0.8480 area with on-the-day gains of about 0.85% or 72 pips. That marks the pair’s worst daily performance since 3 November, when the Bank of England surprised markets by opting to leave interest rates unchanged.

The latest rally only takes EUR/GBP back to as high as levels seen midway through the month, and the pair remains more than 1.3% below earlier monthly highs. The pair’s long-term downtrend is nowhere near yet under threat.

The reason for the heightened volatility on Friday was a combination of risk-off flows and dovish repricing of central bank expectations in light of the latest Covid-19 developments. Other analysts cited thin market liquidity conditions as exacerbating things due to the US holidays. GBP is typically more sensitive to swings in risk appetite than the euro, partially because the euro’s negative yield encourages traders to use it as a “funding currency” for risky bets, that then get unwound in times of strife (leading to “haven” flows back to the euro). Moreover, GBP is more exposed to dovish central bank repricing than the EUR given that markets near-term tightening from the BoE and not from the ECB (though, to be fair, the latter is set to end the PEPP in March).

The shift in central bank pricing that benefitted the euro versus the pound can be summed up by looking at by comparing movements in interest rate futures. The three-month December 2022 sterling LIBOR future was up over 10 points to 98.82 on Friday (implying 10bps less tightening expected by the end of 2022) versus a 4.5 point rise in the euro equivalent future (implying 4.5bps less tightening by the end of 2022).

Elsewhere, with focus very much on the macro story and the potential economic, fiscal and monetary implications of the newly discovered Covid-19 variant, Brexit headlines and BoE speak were ignored. In fairness, neither offered surprises; Brexit talks rumble on without signs of progress and while the BoE’s chief economist Huw Pill was understandably worried about the Covid-19 variant news.

 

  • The discovery of a new COVID-19 variant in South Africa that could be harder to combat spurred risk-off market mood.
  • The British pound fell on COVID-19 new variant though ended the day in the green, up 0.09%.
  • GBP/USD upward move caused by US dollar weakness.

The British pound recovers from earlier losses during the day, despite risk-of-market sentiment clouding the financial markets due to discovering a new COVID-19 variant in South Africa. At the time of writing, the GBP/USD is trading at 1.3341, up some 0.14%.

In the overnight session, market sentiment dampened as South Africa announced the discovery of a new COVID-19 variant.

The World Health Organization (WHO) said that it is a variant of concern, posing a threat that could confound countries’ efforts to slow the spread of COVID-19. According to sources cited by CNBC, “that the variant contains a “unique constellation” of more than 30 mutations to the spike protein, the component of the virus that binds to cells. This is significantly more than those of the delta variant.”

The mutations found on the B.1.1.529 COVID-19 variant called omicron are linked to antibody resistance, affecting how the virus behaves regarding vaccines, treatments, and transmissibility. According to Tulio de Oliveira, a Scientist in South Africa, cited by CNBC, said the variant contains around 50 mutations.

Putting COVID-19 theme on the side, the latest development in Brexit could weaken the GBP. On Friday, UK Brexit Minister David Frost said that “while we would still like to find a negotiated solution with the EU on the Northern Ireland Protocol, the gap between our positions is significant, and we are ready to use Article 16.” Meanwhile, his counterpart Maros Sefcovic said that “a decisive push was needed to ensure predictability” in the case of supplying medicines.

Back to the GBP/USD, in the overnight session, the pair remained subdued, despite the risk-off mode that weakened most risk-sensitive currencies, versus safe-haven peers, except for the US dollar. The British pound dipped as low as the S2 daily pivot point at 1.3272 when the coronavirus news crossed the wires but bounced off, reclaiming the 1.3300 figure.

That said, GBP/USD traders would need to focus on the developments of Brexit, the Bank of England, and the new coronavirus variant. On Friday, GBP/USD bulls held their ground; however, coronavirus developments over the weekend could worsen market mood conditions that could favor USD bulls.

GBP/USD Price Forecast: Technical outlook

The GBP/USD pair keeps trading within a descending channel of 350 pips wide or so. The dip witnessed in the session on risk aversion briefly touched the bottom-trendline of the abovementioned. However, it rejected the downward move, forming a candle chart called “hammer” in the daily chart, indicating that bulls regain control in the near term. Nevertheless, the daily moving averages (DMA’s) with a downslope reside above the spot price, reinforcing the downtrend.

In the outcome of a corrective move to the upside, the November 12 swing low support-turned-resistance at 1.3352 would be the first resistance. A breach of that level would expose crucial resistance areas, like the September 29 cycle low support now resistance at 1.3411, followed by the November 18 high at 1.3513.

On the other hand, the 1.3300 psychological would be the first support, that once broken, could pave the way for further losses, finding key support levels on its way down. The next support would be the November 26 low at 1.3278, followed by the figure at 1.3200.

 

  • XAG/USD falls on the back of the discovery of a new COVD-19 variant in South Africa.
  • Risk-off market mood spurred by the COVID-19 NU variant triggered a sell-off in the precious metals segment.

Silver (XAG/USD) extends its overnight session losses, plunges 1.91% in the day, trading at $23.14 during the New York session at the time of writing. The discovery of a new COVID-19 variant called NU in South Africa dented the market sentiment.

South Africa discovered a new COVID-19 variant, which dampened market sentiment

According to wires, the global scientific community is on alert. There is a chance that the new COVID-19 variant “NU” discovered in South Africa, could be more virulent than the Delta and vaccine-resistant. Scientists said that it has many mutations on the spike protein, and it is the “most evolved” variant yet discovered from the original virus.

In the overnight session, XAG/USD reached a daily high at $23.70. However, once the level was reached, COVD-19 news crossing the wires triggered a $0.40 drop that found some follow-through as the European and North American sessions progressed. In the last couple of hours, silver broke below $23.00 but bounced off Friday’s low at $22.87, reclaiming the $23.00 as of writing.

In the meantime, the US Dollar Index, which tracks the greenback’s performance against a basket of six rivals, falls 0.60%, sits at 96.15, underpinned by falling US T-bond yields, with the 10-year benchmark note, slides 14 basis points, down to 1.50%.

Therefore, COVID-19 developments would be the main drivers for silver and commodity traders. It is worth noticing that gold is trading with heavy losses, collapsed $15.00 in the day, standing at $1,785, at press time. Further, Western Texas Intermediate (WTI), US crude oil benchmark is down 11.63%, trading at $68.91.

XAG/USD Price Forecast: Technical outlook

Silver (XAG/USD) has a bearish bias, as depicted by the daily moving averages (DMA’s) residing above the spot price. That, alongside the Relative Strenght Index (RSI) at 36, indicates that the non-yielding metal still has enough room to print another leg-down.

In the outcome of extending the downtrend, the first demand zone would be the $23.00 figure. A breach of the latter would expose crucial support levels, like the October 12 swing low at $22.34, followed by the psychological $22.00.

 

UK Brexit Minister Lord David Frost said on Friday that, while we would still like to find a negotiated solution with the EU on the Northern Ireland Protocol, the gap between our positions is significant and we are ready to use Article 16. These comments are in line with remarks he made earlier in the week.

Frost’s EU counterpart Maros Sefcovic also made comments earlier. He said that a decisive push was needed to ensure predictability.

  • Mexican peso under pressure amid global risk aversion due to new COVID variant.
  • The retreat in USD/MXN found support above 21.65, now is approaching 22.00.

The USD/MXN is rising 1.50% on Friday, adding to weekly gains. It peaked during the Asian session at 22.15, the highest level since September 2020 and then pulled back finding support at 21.65. As of writing it is hovering around 21.90 as the market’s sell-off continues.

The concerns triggered by the new COVID-19 variant hits market sentiment. Equity markets tumbled in Europe and in the US, the Dow Jones is falling by 2.70% and the Nasdaq by 1.95%.

Emerging market currencies are falling sharply. The worst performers are the Turkish lira (USD/TRY +4.45%), the South African rand (USD/ZAR + 1.75%) and the Mexican peso.

The USD/MXN was already sharply higher for the week, not only boosted by global developments but also by domestic factors. The change in the nomination for the next head of the Bank of Mexico sent the Mexican peso lower earlier on the week.

The US dollar is up by almost 5% over the last five days versus the Mexican peso; the biggest rally since September of last year. It is about to post the highest close in more than a year. The rally could go on if market conditions remain negative.

Technical levels

 

  • South African NU COVID-19 variant jitters spurred risk aversion.
  • USD/CHF plummeted from 0.9350s towards 0.9230s as market sentiment dampened.
  • USD/CHF broke the 50-DMA, bears eye the 100-DMA and the 0.9200 figure.

The USD/CHF plummets during the New York session, down 1.44%, trading at 0.9223 at the time of writing. In the overnight session, COVID-19 jitters, around a new virus variant called NU, found in South Africa, dented the market sentiment, as safe-haven currencies like the Swiss franc and the Japanese yen are rising against most G8 currencies, including the US dollar.

South African NU COVID-19 variant jitters spurred risk aversion

In the overnight session, the USD/CHF traded near the highs 0.9350s, but the news of the new COVID-19 NU variant found in South Africa spurred the downward move in the pair, breaking crucial levels on the way south. The 50-day moving average (DMA) at 0.9234 has been broken at press time, exposing the 100-DMA right around the 0.9200 figure.

Data coming out of South Africa keeps the global scientific community on alert. There is a chance that the NU variant might be more virulent than the Delta, and it could be vaccine-resistant. According to scientists, it has a high number of mutations on the spike protein, and it is the “most evolved” variant yet discovered from the original virus.

That said, in the near term, USD/CHF traders would lie on COVID-19 developments, alongside macroeconomic outlook and market sentiment, which could offer some fresh impetus to act on it. 

USD/CHF Price Forecast: Technical outlook

The USD/CHF is south of the 50-DMA, approaching the 0.9200 figure, trading near two-week lows. Nevertheless, the fundamentals have not changed as the move was triggered by market sentiment, so the pair is tilted to the upside. Also, the October 26 swing high at 0.9226 resistance-turned-support, alongside the 50-DMA, capped the downside move at the moment, but a daily close over the levels mentioned above is needed to confirm a bottom.

On the way south, the confluence of the 100-DMA and the 0.9200 figure would be the first support area. A breach of the latter would expose crucial support levels, like the 200-DMA at 0.9168, followed by 0.9100.

On the flip side, in the outcome of reclaiming 0.9230, that would expose the July 2 swing high at 0.9274, followed by the 0.9300 figure. 

 

South African Health Minister Mathume Phaahla asid on Friday that the reaction of the UK and other countries in Europe to the Covid-19 variant found in South Africa was unjustified, according to Reuters.

South Africa is acting with transparency, he insisted, and while preliminary studies do suggest variant may be more transmissible, the reaction of some countries by imposing travel bans are completely against norms and standards of the WHO. Phaahla continued that he is confident that vaccines remain major bulwark in terms of protecting us from the virus.

  • AUD/USD is consolidating in the mid-0.7100s having nearly hit the 0.7100 level earlier in the session.
  • The pair is on course for steep daily losses amid heightened pandemic fears.
  • A break of 0.7100 could see the pair drop quickly to 0.7000.

AUD/USD tumbled below key support in the form of the late September low at 0.7170 on Friday and eventually fell as low as 0.71125, as risk assets were pummeled amid a spike in pandemic-related fears. The pair has since recovered back to close to 0.7140, but still trades with losses of about 0.7% or 50 pips on the day and is on course to end the week down 1.2%.

For now, dip-buying and profit-taking on previous short positions have kept AUD/USD above support in the 0.7100 area. Should this support break, a run towards the next key area of support around 0.7000 is likely.

Concerning new variant

The latest data out of South Africa regarding a recently discovered new Covid-19 variant has caused global health authorities and the scientific community highly concerned. There is a chance that 1) the variant might be more virulent than the delta variant and 2) the variant might be vaccine-resistant. According to the scientists who have sequenced the variant’s genome, it has a high number of mutations to the spike protein (the part the mRNA vaccines are designed to target). According to some in the scientific community, it is the “most evolved” variant yet discovered from the original virus.

Risk-off, Aussie lower

Thus, a major theme in the news on Friday has been various countries around the world reimposing travel restrictions to South Africa and other nations known to house the new variant. Market participants have been dumping risk assets out of fear that not only travel restrictions will hurt the global economic recovery, but also that the countries may be forced into further lockdowns again if the new variant is as dangerous as feared.

The Aussie is thus not a good asset to hold in these conditions, given its historic strong correlation to risk appetite and the Australian economy’s exposure to global economic conditions. Moreover, industrial metals took a beating on Friday amid fears of a global economic slowdown, with the Bloomberg Industrial Metals subindex (BCOMIN) lurching 3.8% lower. The export of industrial metals and their ingredients such as copper and iron ore are key for the Australian economy.