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Holiday in most of Europe, all eyes on the U.K, China, commodities, and inflation – Market Overview

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Miguel A. Rodriguez
Miguel A. Rodriguez
05 November 2022
Today’s trading session will be less eventful, as markets are closed in most of Europe. However, the U.K. is still open, so activity will not be completely underwater.

The uncertainty surrounding a potential inflationary outbreak in the United States still weighs in heavily on the markets.

Some investment banks such as JP Morgan have published studies predicting that growth and corporate profits could peak soon and that the Federal Reserve could change its discourse towards a more hawkish tone. However, the U.S.’ central bank could still maintain a very accommodative monetary policy for an extended period, as they have already stated.

If these forecasts are correct, we would be in a scenario in which the stock markets would lose the upward momentum they have garnered throughout the previous period and could even suffer downward corrections. At the same time, the fixed income market would continue to experience outflows with the consequent rises of bond yields. Finally, the U.S. Dollar would act as a haven currency, supported by the increase in interest rates and a weaker stock market.

In recent days we have witnessed corrections in the commodity markets. In this regard, China has spoken out against what they consider an excessive upward movement for commodities. The country has also issued a warning to commodity companies, announcing that they will monitor the market behavior and strengthen the commodity futures' supervision.

The Chinese authority also stated that it will not allow any violation of market rules and will severely punish monopolistic practices and excessive speculation. China is the world's leading buyer of raw materials, and such a warning could have severe consequences in the market.

COPPER, the main industrial metal that has a positive correlation with the price of the North American stock indices, has been on a downtrend for ten consecutive days, something that had not happened since the beginning of the pandemic crisis. Technically, this metal is close to a support level at 4.4270 below, which would make way for deeper corrections to the 4.34 and 4.00 zones.

In addition to being correlated with the North American indices, especially the S &P500, copper also has a positive correlation with the Australian dollar, the country's currency whose exports of raw materials go to China to a greater extent.

The AUD/USD pair has been experiencing flat behavior recently, with the previous bullish momentum lost. Technically it is moving around the 100-day SMA line but still far from its main support, around 0.7572.

Sources: investing.com, Bloomberg.

The information presented herein is prepared by capex.com/ae and does not intend to constitute Investment Advice. The information herein is provided as a general marketing communication for information purposes only.Users/readers should not rely solely on the information presented herewith and should do their own research/analysis by also reading the actual underlying research. The content herewith is generic and does not take into consideration individual personal circumstances, investment experience, or current financial situation. 

Key Way Markets Ltd shall not accept any responsibility for any losses of traders due to the use and the content of the information presented herein. Past performance and forecasts are not reliable indicators of future results.

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Miguel A. Rodriguez
Miguel A. Rodriguez
Financial Writer

Miguel worked for major financial institutions such as Banco Santander, and Banco Central-Hispano. He is a published author of currency trading books.