Risk markets added to the big Tuesday rally with equities higher Wednesday across the US and Europe. Market sentiment has turned over the last few days on relief that the new Omicron variant may not hurt economic activity as much as previously thought. The dollar is being offered as safe haven demand dwindles into the holiday season.

Whisper it quietly, but some are hoping we are now seeing the famous “Santa rally” where stock markets have traditionally moved higher during the second half of the month.

In fact, analysts are pointing to the final five trading days of the year (and the first two into the following year) as being the key days when this historic outperformance has really kicked in.

The market is certainly taking a half-full approach to the handful of studies regarding Omicron which now show the variant could be a less severe disease than its predecessor Delta variant. A more infectious but less dangerous variant could mean herd immunity is reached more broadly without overwhelming hospitals. This would in turn result in less severe social restrictions and more normal economic activity.

Quiet FX space

The week before the festive period is often a low volatile FX period where volumes are lows and trading desks are in holiday mode. Seasonal tendencies point to a slightly softer dollar while oil sensitive currencies like CAD are well supported in the new year. Of course, much depends on any new Omicron news and the prevailing risk attitude.

For now, the hawkish shift in the Fed’s tapering plans and dot plot is not helping the dollar break out to new highs. The greenback has a tendency to underperform in December as we have said but underlying support should be seen. The midway point of the pandemic era’s high/low move sits at 96.56 on the DXY. The bottom of the recent range is 95.54 with recent highs at 96.94. Price action is messy and rangebound for now.

US data dump

A bevy of economic data is released today including the November US private consumption data. While this is backward-looking, high good demand has been a key driver of inflation pressures this year. Consensus is looking for a high print for the Fed’s preferred PCE inflation measure with many economists forecasting this gets worse through the winter before dropping by the end of next year.

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