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DAILY ANALYSIS

PIVOT

Forecasting Strategy for Short Term Trade

EUR/USD

The Euro’s problems are persisting when COVID-19 infection rates continue to rise, and the possibility for more stringent lockdowns has increased as government officials scramble to figure out the best way to deal with the omicron variant. Geopolitical pressures are increasing in Eastern Europe, where Russia has been amassing troops along the Ukrainian board. The Nord Stream 2 pipeline may be scrapped as a retaliatory measure, raising questions about Europe’s energy security.

As these questions grow around the Eurozone’s growth trajectory, elevated inflation measures are sending Eurozone real yields lower, representing an albatross on the Euro’s proverbial neck. And yet, the European Central Bank doesn’t appear poised to act soon. ECB President Christine Lagarde recently stated that the inflation looks like a “hump,” suggesting that it will soon fall back again.

USD/JPY

The US dollar rose on Thursday (09/12) evening, even as anxiety about the new variant of the COVID-19 omicron eased. The US Dollar Index, which measures the greenback against a basket of other currencies, was still up 0.11% at 95.983, according to Investing.com data at 1:35 p.m. ET. The USD/JPY pair edged down 0.03% to 113.63.

The discovery of Omicron rattled the market lately and pushed investors towards safe haven assets. However, these fears subsided and increased investor risk appetite. Preliminary data suggest a COVID-19 vaccine made by BioNTech SE and Pfizer Inc. can neutralize omicron.

GBP/USD

The Pound Sterling has been on a rather choppy decline since printing the 2021 high in early June but has seen a sharper, more concerted drop since the November 4th Bank of England (BoE) decision to keep interest rates unchanged. In hindsight, considering the emergence of the Omicron variant, the decision to hold rates looks like the right one as the UK looks set to implement enhanced measures to combat increasing Covid infections, known as “Plan B”, next week.

AUD/USD

The Australian Dollar did little in reaction to mixed Chinese inflation data, keeping the recent uptrend intact. CPI for the 12 months to the end of November came in at 2.3% against 2.5% forecast. PPI printed at 12.9 % over the same period, higher than 12.1% anticipated. This is the second highest outcome in 26 years next to last month.

This increase in the gap between the two inflation gauges presents a conundrum for policymakers. While CPI is relatively low, a high PPI can lead to rising CPI further down the track. From a macro perspective, businesses have a choice between absorbing a lower profit margin or passing on higher input prices to consumers.

XAU/USD

Gold prices were largely unchanged over the past 24 hours despite some weakness in the US Dollar. The yield curve flattened overnight, boosting riskier assets like equities. That also gave the advantaged to technology stocks on Wall Street. The yellow metal faces a tougher path higher ever since the Federal Reserve shifted to a more hawkish stance several weeks ago.

That hawkish shift has markets pricing in a more aggressive rate hiking schedule from the Federal Reserve, which has pushed breakeven rates lower. For now, it appears market participants believe the Fed will get a handle on inflation going forward. Even the Omicron variant doesn’t appear to be altering the current outlook. It will likely take a massive shock at this point to throw the Fed off course, which is unlikely.

WTI

WTI crude oil prices climbed over the past 24 hours, extending gains from the end of last week. The commodity has climbed out of a bear market, defined by a market correction in excess of 20%. Oil is now down about 15% from October’s peak. The growth-linked commodity was likely supported by general market sentiment and ongoing updates about the Omicron Covid-19 variant.

Reports crossed the wires from Pfizer and BioNTech that early lab studies showed that a third dose of their vaccine neutralizes the new variant. They also announced that a variant-specific dose could be made available around March 2022. This bodes well for WTI, which was suffering in November when the Omicron variant dented global growth estimates. 

#CSCO


International Data Corporation (IDC), a research firm based in Massachusetts, published a new report about the Internet of Things (IoT), predicts that global spending on IoT will be almost $755 billion in 2021 and could reach as high as $1.2 trillion by 2025. Essentially, IoT spending around the world is predicted to expand at a compound annual growth rate of more than 11% between 2021 and 2025, according to IDC.

Cisco Systems Inc (NASDAQ:CSCO) represents one such company. As an established tech giant with solid IoT offerings, it is a good candidate to profit from this trend. The California-based communication equipment company has a presence in the global market and holds a well-diversified portfolio of products.

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