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Weekly Summary: New COVID-19 Variant Amplified Risk off Mode

The way in which the week is ending was definitely not expected as we see that the market is in a total “risk off” mode amid the spread of the new horrific COVID-19 variant B.1.1.529 (no code-name has been given to it by the World Health Organisation so far) which originated in South Africa. This variant has been described as the worst one that scientists have seen so far, and they also said that it is likely to be immune to all vaccines created to date.

Investors have responded with a sell offs in the stock market across all countries. Asia, Europe, and the United States are in red by 2-3%. Oil prices fell far with the Brent crude benchmark tumbling by more than 5% and breaking through the main support level at $78 per barrel. The next stop for Brent crude prices may be found at $72-74 per barrel.

Under such circumstances investors will hardly pay attention to any macroeconomic data or monetary discussions, at least until Monday as the new variant will be a core topic for discussion next week. The S&P broad market index broke the crucial support level at 4660 points and fell to 4600 points. The next support is at the 4540-4570 area. Directional moves to this area may break the upside pattern causing a downside trend to emerge. However, there are some hopes for the next week as the upside scenario for the S&P 500 index is still on the table. This scenario will still be active if the index does not reach this area by the end of Monday. Anyway, any sell positions for S&P 500 index should be closed until Monday to see the reaction of traders in the U.S. If this decline is stopped it will create good opportunities which will expire by Thursday and a target at 4660 points will be created, and even a new all-time high could be reached.

The oil market is moving in line with the stock market as Brent crude prices fell below an important support at $78 per barrel. However, this breakthrough may turn to be false if prices quickly recover by Monday. If the recovery does not happen, the downslide to $72-74 per barrel will become a primary scenario.

The OPEC+ meeting is going to take place next week, during which responses to the United States, China, India, Japan, South Korea, and the United Kingdom interventions in the oil market are expected to be given. OPEC+ may turn down the agreed lifting of oil output by 400,000 barrels a day starting next January.

Gold prices have stabilised around $1800 per troy ounce. Fears of the spread of new COVID-19 variant support gold prices. However, the likely scenario is a decline of prices to $1750 and lower as we near the end of 2021. The ultimate target for this year may lie at $1550-1650 per ounce.

EURUSD continued its decline reaching the 1.11830 mark that is close to the strong support level at 1.11000-1.11500. The Euro is unlikely to fall below this level, and it performed a rebound to 1.12800. However, it is looking more possible that such an upside spike will be temporary and may last until next Tuesday, up to 1.13300. By reaching this level, the Euro may sell within the  1.12000 target.

GBPUSD has reached its target at 1.32700-1.32800. The rebound may continue to 1.33500. But, next Tuesday the pressure on the Pound may be restored and therefore the currency may move  on the downside track below 1.33000 by the end of next week.