Trade Strategy Considering the Impact of the Novel Coronavirus "Omicron" Type [November 29 to November 3]

Last Week's Foreign Exchange Range (Volatility Range)

Last Week's Foreign Exchange Summary

USD/JPY

• Last week's dollar-yen started at 113.93 per dollar. As reports indicated Powell would stay on as Fed Chair, market focus shifted to policy continuity and stability, pushing the dollar higher toward the mid-114s. On Tuesday, strong US PMI and other positive data further boosted the dollar, breaking above 115. The range around 115.30 was maintained from Wednesday through Thursday.On Friday, the World Health Organization announced the Omicron variant, triggering a sharp risk-off move. The dollar-yen fell to 113.06 before closing at 113.31.

EUR/USD

• The euro started at 1.1289 dollars per euro. In the first part of the week, euro weakness dominated as the dollar gained, with the pair briefly slipping below 1.1200 on Wednesday. On Friday, news of a new COVID-19 variant reversed the trend, and the dollar weakened as the euro rebounded, briefly breaking above 1.1300 to 1.1331 before closing at 1.1317.

USD/CNH

• The yuan started at 6.3910 per dollar. This week, the PBOC continued ample liquidity support, contributing to a gradual yuan depreciation. The week ended with a close at 6.3946, near 6.40 but not breaking through.

What Happened Last Week

22nd

• People's Bank of China kept the LPR at 1-year 3.85%
• Hong Kong CPI +1.7%
• US October existing home sales at a seasonally adjusted annual rate of 6.34 million, +0.8% from prior month
• US 2-year note auction high yield 0.623%
• US 5-year note auction high yield 1.319%
• President Biden decided to nominate Jerome Powell to continue as Fed Chair. White House announced that Powell's term runs until February 2022. By confirming Powell, the administration signals a stance of policy stability and continued inflation management.

23rd

• Japan holiday (Labor Thanksgiving Day)
• Euro area November PMIs: Manufacturing 58.6, Services 56.6(Strong)
• US November PMIs: Manufacturing 59.1, Services 57.0(Strong)
• November Richmond Fed manufacturing index 11
• US 7-year note auction high yield 1.588%
• Turkey's rapid currency depreciation and turmoil spread. Lira fell more than 15% against the dollar at one point, disrupting online sales and other trades. Anti-government protests emerged in Ankara and other cities, despite a generally authoritarian environment.

24th

• Reserve Bank of New Zealand raises cash rate by 0.25 percentage points to 0.75%
• Prev. week initial jobless claims 199,000
• US October durable goods orders -0.5%
• US October PCE deflator +5.0%
• US October new home sales 745,000 annualized, +0.4%
• Germany's SPD, greens, and FDP agreed to form a coalition; Olaf Scholz to become next chancellor, succeeding Angela Merkel.
• Prime Minister Kishida announced the release of strategic oil reserves to help curb rising gasoline prices.

25th

• US Thanksgiving Holiday
• Bank of Korea raises policy rate by 0.25 percentage points to 1.00%
• Japan October Corporate Services Price Index +1.0%
• Sveriges Riksbank keeps policy rate unchanged
• EU shifts policy stance toward China in Asia policy. At the Asia-Europe Meeting (ASEM) leaders' summit held online on 25–26, EU leaders expressed intention to deepen cooperation with democracies sharing core values such as freedom and human rights.

26th

• November Tokyo Metropolitan Area CPI +0.3%
• Australia October retail sales +4.9%
• Kishida: for the spring wage negotiations, expects wage hikes above 3% for firms with pre-pandemic performance
• US Black Friday sales kicked off, boosting year-end shopping. Increased foot traffic boosted apparel and cosmetics sales, though some stores faced shortages and logistics strains.
• WHO classified a newly detected COVID-19 variant in South Africa as a VOC (Variants of Concern) named Omicron.The variant carries many mutations and may have higher reinfection risk. Cases detected in Belgium indicate possible global spread.
• US stock market closed lower; Dow down 905 points (2.5%) to 34,899. The drop was the largest this year, with intraday losses exceeding 1,000 points at times.The onset of a new variant in South Africa triggered broad declines in Asia and Europe, with spillover to the US.

Glossary of Economic Terms

• GDP = Gross Domestic Product: higher growth is favorable
• CPI = Consumer Price Index: many advanced economies target 2%
• PCE = Personal Consumption Expenditures: consumer spending; highly correlated with consumer prices
• PPI = Producer Price Index: affects CPI
• PMI = Purchasing Manager Index: 50 is the baseline
• ZEW = Leibniz Centre for European Economic Research: 0 is the baseline
• NAHB = National Association of Home Builders: 50 is the baseline
• NY Fed manufacturing index: 0 is the baseline
• Philadelphia Fed manufacturing index: 0 is the baseline
• Richmond Fed manufacturing index: 0 is the baseline
• Chicago Purchasing Managers Index (PMI): 50 is the baseline
• University of Michigan Consumer Sentiment Index: indexed with 1966=100
• S&P/ Case-Shiller Home Price Index: the 20-CMS Home Price Index is commonly used; an important indicator of housing market trends with significant impact on the economy
• Housing Permits Index: tracks homes for which contracts exist but settlement not yet completed
• Euro Area Consumer Confidence Index: index around 100; base year 2000–2020
• Euro Area Economic Sentiment Index: base 100 (2000–2020)
• Consumer Confidence Index: base year 1985 = 100
• Japan Economic Watchers Survey: base 50
• Japan Corporate Goods Price Index: base 0
• Japan Manufacturing PMI: base 0

Notable Economic Indicators and Political Events

29th

• World Health Organization (WHO) General Assembly
• 16:00 Turkey October trade balance
• 22:00 Germany November CPI
• 24:00 US October Housing Starts/Permits

30th

• 08:50 Japan October Industrial Production
• 09:30 Australia Sep–Nov Current Account
• 09:30 Australia October Building Permits
• 10:00 China November Manufacturing PMI
• 14:00 Japan October New Housing Starts
• 16:45 France November CPI
• 19:00 Euro Area November CPI
• 23:00 US September Case-Shiller Home Price Index
• 23:45 November Chicago PMI
• 24:00 US November Consumer Confidence
• 24:00Powell, Fed Chair, speaksCoronavirus and CARES ActBefore the U.S. Senate Committee on Banking, Housing, and Urban Affairs

1st

• 09:30 Australia Sep–Nov Quarterly GDP
• 10:45 China November Caixin Manufacturing PMI
• 22:15US November ADP Employment Report
• 24:00US November ISM Manufacturing Index
• 28:00 US Federal Reserve Districts' Economic Reports

2nd

• OPEC+ Ministers Meeting
• 08:50 Japan November Monetary Base
• 09:30 Australia October Trade Balance
• 19:00 Euro Area October Producer Price Index
• 22:30 US Previous Week Initial Jobless Claims

3rd

• 10:45 China November Caixin Services PMI
• 16:00 Turkey November Inflation
• 22:30US November Employment Situation
• 22:30 Canada November Employment
• 24:00US November ISM Non-Manufacturing Index

Beyond Next Week

• Dec 14–15: FOMC (with Economic Projections)
• Dec 16: ECB
• Dec 16–17: BoJ Monetary Policy Meeting
• Jan 17–21: Davos World Economic Forum
• Jan 18: BoJ Monetary Policy Meeting (Outlook for Economy and Prices)
• Jan 26: FOMC
• Feb 3: ECB
• Mar 10: ECB
• Mar 16: FOMC (with Economic Projections)
• Mar 18: BoJ Monetary Policy Meeting
• Apr 14: ECB
• Apr 28: BoJ Monetary Policy Meeting (Outlook for Economy and Prices)
• May 4: FOMC
• Jun 9: ECB
• Jun 15: FOMC (with Economic Projections)
• Jun 17: BoJ Monetary Policy Meeting
• Jul 21: BoJ Monetary Policy Meeting (Outlook for Economy and Prices)
• Jul 21: ECB
• Jul 27: FOMC
• Sep 8: ECB
• Sep 21: FOMC (with Economic Projections)
• Sep 22: BoJ Monetary Policy Meeting
• Oct 27: ECB
• Oct 28: BoJ Monetary Policy Meeting (Outlook for Economy and Prices)
• Nov 2: FOMC
• Dec 14: FOMC (with Economic Projections)
• Dec 15: ECB
• Dec 20: BoJ Monetary Policy Meeting

※ From here (“Last Week's Currencies Strength/Weakness,” “Global Macro Environment Overview,” “Chart Analysis,” and “Toda's Trading Strategy for This Week”) is a paid article

Currency Strength Last Week

• Dollar strength extended last week (in 140 of 196 countries)
• Reasons: strong U.S. economic indicators and rising U.S. inflation pressure
• However, in the latter part of the week, concerns over the Omicron variant led to a sharp drop in U.S. yields, turning the dollar higher, and the market faced a risk-off tone as the week ended
• Turkish lira plunged with a stop run
• Mexican peso also faced selling from investors following the change of the central bank chief
• Although Omicron-related damages and economic impact cannot be denied, the overall trend remains: selling of emerging market currencies and buying of the U.S. dollar
• Yen has been bought substantially on a risk-off basis in the short term
• In summary, currency strength/weakness is as followsJPY > EUR > USD > CNY > commodity & emerging market currencies > Turkish lira

Global Macro Environment (Latest)

• The market theme has shifted, at least in the short term, toward the fourth wave of COVID-19, Omicron
• U.S. 10-year yield has fallen significantly (below 1.50%),risk-off mode dominates the market
• Impact of Omicron on markets is best followed through headlines, but at least in the short term risk-off seems likely to prevail
• On the other hand, vaccination rates are rising in developed countries and experience with the virus is accumulating, sowe should avoid excessive risk-off expectations
• The original themes—“supply chain disruptions” and “commodity inflation”—and the global “inflationary pressure” and the resulting “monetary policy divergence”—are what we should watch to see when they return
• Additionally, whether the Build Back Better Act passes Congress remains a key focus. The market has shifted toward risk-off for now, and passing through Congress seems more feasible
• In the short term, we should monitor Omicron’s impact while also confirming inflationary pressures in the currencies we tradeas a consideration

Global Macro Environment (Supplement)

• New COVID cases are rising, with strong awareness of the fourth wave concerns(Attached chart: Daily New Cases)
• However, new deaths have stabilized, suggesting the current wave may not cause as much damage as before(Attached chart: Daily Deaths)
• Market participants’ expectations for Fed rate hikes remain centered on the first hike in June 2022 and the second in September 2022

Chart Analysis

USD Index (Daily)

• The dollar index is a measure of overall dollar strength (basket composition: EUR 57.6%, JPY 13.6%, GBP 11.9%, CAD 9.1%, SEK 4.2%, CHF 3.6%)
• It has briefly rebounded near 97.00
• There is currently no sign that the dollar strength trend will abruptly reverse

USD/JPY Mid-term (Daily)

• Current level around 113.30 is a key chart point
• If it declines, 112.20 will be watched

USD/JPY Short-term (Intraday)

• Near-term reference: 112.70

EUR/USD Mid-term (Daily)

• Has rebounded around the June 2020 low near 1.1210
• Retracement target: 1.1370 (half-way retracement)
• Strong rebound could reach 1.1530 (previous drop catalyst)

EUR/USD Short-term (Intraday)

• In the near term, 1.1370, 1.1490, 1.1530 are the retracement targets

USD/CNH Mid-term (Daily)

• Range continues between 6.3500 and 6.4250
• Short-term, the level 6.40 is in focus

USD/CNH Short-term (Intraday)

• Seems to be forming an uptrend
• Be cautious above 6.40

This Week's Todaka Trading Strategy

Overall Policy

• Reduce positions and prepare for risk-off
• Prioritize yen buying
• Want to resume selling USD and buying JPY on any rebound while watching crude oil prices and U.S. rate trends
• However, do not rely on excessive risk-off expectations; be prepared to move quickly

USD/JPY

• Last Friday’s close: 113.31
• View: range-bound to slightly lower
• Expected range: 112.20–114.40
• Current position: USD/JPY +2.0
• First, execute a full stop-loss at the start of the week
• Medium to long term cautious on the upside, but this week focus on selling
• Aim to buy low and sell highwith
• Lower targets: 112.20, 111.10; upper target: 114.40
• Always set stop-loss and execute it early

EUR/USD, EUR/JPY

• Last Friday’s close: EUR/USD 1.1317
• View: EUR/USD range-bound; EUR/JPY range-bound
• Expected range: EUR/USD 1.1210–1.1370
• Current positions: EUR/USD ±0; EUR/JPY ±0
• Consider selling on gains above 1.1370

CNH/JPY, USD/CNH

• Last Friday’s close: USD/CNH 6.3946
• View: USD/CNH flat to slightly higher, CNH/JPY flat to lower
• Expected range: USD/CNH 6.3750–6.4500
• Current positions: USD/CNH ± 0.0; CNH/JPY +5.0
• First, reduce positions at the start of the week and monitor news on COVID-19

Subscriber-Only Discord Invitation Code

Please apply from the URL below

https://discord.gg/WpDwaJZUhh

Please use your GoGoJungle nickname for registration

Important Notices

Unauthorized reproduction of any content in this newsletter is prohibited. This newsletter is for information purposes only, and its accuracy is not guaranteed by us or the information source, and the content may change due to changes in economic conditions. Users should utilize the information at their own risk and consult professionals in law, accounting, and taxes for individual matters. If users suffer damages from using this information, we and the information source bear no liability regardless of the cause.