Broad market moves have been increasingly negative for risk assets since early November. A tapering Federal Reserve and the wild spike in volatility on the back of the omicron COVID variant has sent markets spiraling out of risk assets, with the flow into safer haven plays. This is evident across major forex pairs and continued in the wake of the Nonfarm Payrolls report on Friday. The US dollar (USD) is the key outperformer. Until there is a notable reduction in volatility and an improvement in risk appetite, we are likely to see this trend continuing.

  • Only the Japanese yen has outperformed the USD since the beginning of November
  • Friday’s US payrolls report has played into this trend
  • Despite an initial unwind today, we see the USD positive trend continuing.

Forex safe havens continue to outperform

Over the past month, we have seen the safe havens outperforming. This has meant that the Japanese yen, Swiss franc, and to a slightly lesser extent, the Euro have held up relatively well. On the flip-side, the higher risk, growth-oriented, commodity major currencies such as the Australian dollar, New Zealand dollar, and Canadian dollar, have all performed poorly. 

Forex since November

For now, we see little decisive reason for this to change. Although there has been a tick higher in the riskier currencies this morning (potentially on the rumours of a possible cut to Chinese interest rates), we do not see this move as being sustainable. There would need to be a considerable turnaround, consistently, to convince that there could be a decisive recovery on these currencies versus the USD

For a turnaround, volatility needs to fall back again

For any recovery versus the USD, there needs to be a calming of fear levels. Market measures of volatility need to fall back. Right now, markets are extremely sensitive to newsflow, especially surrounding omicron but also US economic data that can impact the Fed’s monetary policy moves. 

Volatility increased sharply in the second week of November as a risk negative bias formed across major forex pairs. Volatility has remained elevated in recent weeks.

Deutsche Bank VI

Friday’s payrolls report should have been USD negative with a decisive miss on the jobs growth. Given how volatile markets are right now, the result was a risk negative swing across major markets. This drove safe haven (JPY and CHF) outperformance on major forex, whilst cyclical forex currencies (AUD and NZD) suffered as a result. 

Watching other volatility gauges such as the VIX may also give a clue as to performance across the major pairs. Whilst the VIX Index remains elevated, fear levels will remain elevated and higher risk commodity currencies will likely underperform.   

S&P 500 VIX

The key levels to watch on major forex

Despite all this, the USD bulls may not get things all their way. We are watching out for a potential correction on USD/CAD. The oil price is beginning to show signs of stability and if this turns into recovery then a rebound in the Canadian dollar could set in.

If the price of Brent Crude can rally above $73.50 then this would be the first decisive sign of recovery. If this does come, then we would begin to play for a CAD rally. We are watching for a close below 1.2743 on USD/CAD as an indication that the market was turning lower. There are already signs of fatigue on the four-hour chart momentum, but USD has been extremely strong as preventing any profit-taking.

It is also worth considering that the Bank of Canada gives a monetary policy update on Wednesday. If the BoC looks past omicron and gives a continued upbear assessment, then CAD could also begin to improve.


It will now take much to convince that the Australian dollar can sustainably turn around. However, on Friday the key support at 0.6990 (November 2020 low) held firm. This morning we have seen a tick higher from an extreme position of 21 on the RSI. However, given the strength of the downtrend of the past five weeks (which today comes in at 0.7120) we would look for at least a trend breach and a higher low above 0.6990 before we can trust any sustainable recovery. This is some way off. 


Even the potential recovery seen on EUR/USD has backed off. The resistance around 1.1370/1.1385 has so far proved to be too great a hurdle. Although this remains the level we see as a trigger for a potential recovery, for now, we have to still be cautious of any long positions on EUR/USD.