Sterling Tumbles as UK Said to Return to Restrictions, Pfizer News Lifts Sentiments

Much volatility is seen in the markets today, in particular in Sterling. The Pound tumbled sharply on news that the UK Government to going to activate a plan B and impose some restrictions as soon as on Wednesday, due to spread of Omicron. Yet, sentiments recovered After Pfizer said results from an initial laboratory showed their vaccine could neutralize Omicron after three doses. For now, Sterling is still the weakest one for today, while Euro and Aussie are the strongest.

Technically, GBP/CAD dived through 1.6716 support today and hit as low as 1.6636 so far. Medium term down trend has resumed and next target would be 61.8% projection of 1.7623 to 1.6716 from 1.7111 at 1.6555. Firm break there will target 100% projection at 1.6204 next. We’ll see if BoC meeting today could trigger downside acceleration in the cross.

In Europe, at the time of writing, FTSE is up 0.14%. DAX is down -0.49%. CAC is down -0.16%. Germany 10-year yield is up 0.092 at -0.365. Earlier in Asia, Nikkei rose 1.42%. Hong Kong HSI rose 0.06%. China Shanghai SSE rose 1.18%. Singapore Strait Times dropped -0.16%. Japan 10-year JGB yield dropped -0.0055 to 0.049.

ECB Kazaks: Don’t preempt policy decisions because of Omicron uncertainty

ECB Governing Council member Martins Kazaks said in an interview that the PEPP emergency asset purchase program would still end as scheduled in March, despite Omicron.

“At the current moment, we don’t know how the omicron variant will develop,” Kazaks said. “Unless it spills over into significant and large negative revisions to the outlook for growth, I don’t see that March — which the market has been expecting for some time and which we’ve been communicating in the past — should be changed.”

“At the moment we simply know too little about omicron,” he said. “I see it important to remain data-driven and make our decisions step by step. So react to the data, rather than preempt decisions when uncertainty is way too high.”

“If in February we see that it’s painful then of course we can change our views and that’s the issue of flexibility,” he said. “In my view, it’s possible both to restart PEPP or increase the envelope if it turns out to be necessary.”

On inflation, Kazaks said, “to exactly what level will it land in 2023-24, of course, there’s lots of uncertainty.” Nevertheless, “my baseline remains that it slides to below 2%.”

BoJ Amamiya: No need to adjust large-scale monetary easing at present

BoJ Deputy Governor Masayoshi Amamiya said in a speech that Japan’s inflation rate is still “far below the price stability target of 2 percent”. CPI is projected to be just around 1% even in fiscal 2023, the end of the current projection period. Therefore, BoJ will “persistently continue with powerful monetary easing” under the current QQE with yield curve control.

While central banks in US and Europe have recently started adjusting their monetary policy, the situation is different in Japan. Amamiya said, “given the price developments in Japan I have described, I think it makes sense that the Bank does not actually need to adjust its large-scale monetary easing at present”.

Also from Japan, GDP dropped -0.9% qoq in Q3, revised down from prior estimate of -0.8% qoq. GDP deflator dropped -1.2% yoy. Current account surplus widened to JPY 1.03T in October.

EUR/GBP Mid-Day Outlook

Daily Pivots: (S1) 0.8494; (P) 0.8505; (R1) 0.8520; More…

EUR/GBP’s rise from 0.8379 resumed by breaking 0.8549 and intraday bias is back on the upside for 0.8593 structural resistance. Sustained break there will be the first sign of larger bullish reversal and target 0.8656 resistance next. On the downside, break of 0.8487 support is needed to indicate completion of the rebound. Otherwise, near term outlook will stay cautiously bullish in case of retreat.

In the bigger picture, price actions from 0.9499 (2020 high) are still seen as developing into a corrective pattern. Deeper fall could be seen as long as 0.8593 resistance holds, towards long term support at 0.8276. We’d look for bottoming signal around there to bring reversal. Meanwhile, firm break of 0.8593 will now be an early sign of medium term bottoming. Further break of 0.8656 will pave the way to 38.2% retracement of 0.9499 to 0.8379 at 0.8807.

Economic Indicators Update