Fundamental analysis for 20.12.2021
The U.S. currency is strengthening against major currencies on Monday. The US dollar is slowly regaining its "safe haven" asset status amid the rapid spread of the new Omicron strain. Last week was full of macroeconomic events. Most central banks intend to fight the high inflation rate by abandoning monetary stimulus and further increasing the key rate. The surprise was the Reserve Bank of Australia Governor's statement about QE and also the Bank of England's monetary policy tightening.
EUR/USD, after Friday's drop, recouped some of its losses on Monday. The ECB maintained a cautious stance, however the Governing Council said it had started to reduce asset purchases, which led to an increase in government bond yields. The European regulator will cut the amount from the current 80 billion to 40 billion by April 2022. By next October the amount of stimulus will fall to 20 billion a month. It should be taken into account that the core inflation rate in the Eurozone is 2.6%, while in England and Britain the figure is over 4%, so the ECB has the opportunity to be less aggressive.
The British pound has been unable to sustain the progress made by the monetary policy tightening and is currently trading near annual lows again. High price pressures, rising labor costs and Omicron spreading are keeping pressure on the GBPUSD pair.
AUD/USD, NZD/USD are falling this week as investors have reduced their interest in high risk assets. The Consumer Confidence Index in Australia lost 1% but held in positive territory, above 100 points. Unemployment fell sharply from 5.2% in October to 4.6% in November. The Australian government does not intend to introduce a new lockdown, and the head of the regulator unexpectedly said he is ready to start cutting QE if the current economic growth stays at the same level. The New Zealand dollar lost ground after a 4.5% GDP slowdown in November while the central bank's outlook was much worse. Both currencies reacted negatively to interest rate cuts in China for short-term loans. USD/CAD is strengthening due to stronger dollar and falling oil prices. Undoubtedly the Canadian economy has a large margin of safety, but a worsening epidemiological situation is pushing the Canadian dollar down.
Brent and WTI are declining today as market participants expect supply to exceed demand in the coming months. In the first quarter this year demand exceeded supply by 1.4 million barrels per day, while at the moment the figure is 0.9 million barrels per day. OPEC+ continues to ramp up production and the U.S. lifted its moratorium on oil and gas development, pushing the average production figure up 0.7 million barrels.
XAU/USD added significantly in the second half of last week. Falling risk appetite and the spreading of Omicron contributed to a significant increase in long positions in the precious metals. At the same time short-term speculative trade limits potential of gold, since reaching the level of 1800 a large part of the market has fixed the profit, now it remains to wait whether buyers will be able to keep current positions.