Risk-off mood dominates amid fears of COVID-19 variant

Technical Analysis

A typical risk-off look in the market

But just be mindful that thinner liquidity conditions may be exacerbating some of the moves, not to mention with the weekend approaching so that isn’t helping in the sense that investors may prefer to stay out until there is more clarity on the situation.

The bond market is arguably the key spot to watch still as yields are dragged down heavily, with 2-year Treasury yields down nearly 7 bps on the day:

10-year yields are also down by almost 9 bps to 1.555% and that is undoing a lot of the surge higher in the past week. It is tough to jump to conclusions still at the moment but the threat of the new virus variant certainly presents a clear enough risk if things do worsen.

Amid the retreat in bond yields, yen pairs are dragged down heavily with AUD/JPY down 1.3% to 81.85 while USD/JPY is down 0.6% to 114.60 levels.

The drop in the latter particularly is a convenient one for sellers to capitalise on, keeping resistance on the weekly chart at 114.74 to 115.00 for the time being.

Elsewhere, oil is also down 3% to $76.00 though there is scope for further downside towards the 100-day moving average @ $74.46:

Biden may get his wish of lower oil prices in the meantime but it isn’t quite a reaction to the SPR release news. As much as oil has bullish undertones from before, all of that is highly contingent on the world beating out the pandemic. Hence, the ‘Nu’ variant certainly throws a big curveball to that ahead of the year-end.

Going back to FX, commodity currencies are hurt the most with the aussie and kiwi leading losses alongside the loonie on the day.

AUD/USD is down 0.7% and heading towards a test of its August lows, which will prove to be a key support level – seen @ 0.7106:

Likewise, NZD/USD price action is reflecting a similar feel with sellers aiming for its own August lows @ 0.6805-09:

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