USA: lack of political consensus leads to economic downturn
This week's most relevant market event occurred yesterday with the publication of the FED's meeting minutes.
FED meeting minutes
FED officials were reluctant to implement new unconventional monetary policy measures for the time being, such as the yield curve control measure, something that the market was demanding, which meant a setback to expectations.
The FED forecast on economic evolution was still not very optimistic. They referred to the need to implement additional fiscal policy measures, something that has not yet been approved by Congress.
Investors have their expectations placed on this new policy since it would mean the definitive impulse for a positive development of the markets.
All this has caused the stock markets to slow down in their rate of increases and that today the markets opened with modest losses.
The jobless claims figures published today have not helped improve the market mood either, with an increase of 1106K, a number higher than the expected 925K, although the Continuing Jobless Claims data has decreased 14,844K from 15,480K.
In this scenario, there is only the possibility of an agreement and implementation of a stimulus package with an amount of less than $1.5 trillion for the market to resume its upward path.
Equities & US presidential election
Meanwhile, the stock markets seem to have stopped their bullish trend, and in the case of USA30, it shows the beginning of a reversal pattern that would be confirmed below the level of 26820 through which the uptrend line started at the beginning of April passes.
Another possibility would be the end of the infections or the creation of an effective vaccine, which would be the beginning of a recovery in economic activity. Still, that will not be possible for the moment, and an indeterminate number of months will have to pass for that to happen.
Another negative factor to take into account is the proximity of the presidential elections in the United States. The uncertainty about its results is usually unfavorable for the stock markets and even more so in the particular case of this year with the Democratic party with a clear advantage in the polls.
The Democratic victories have historically not been taken positively by the markets because there is a belief that it is not a pro-business party. As an example, the tax cuts on corporate earnings that Trump has promised would not be implemented under a Democratic government.
Therefore, it will be necessary to be attentive to the evolution of the market in the coming weeks if it is in the process of initiating a downward correction after the rally of recent months that has taken some North American indices to historical highs such as the USA500.
The US Dollar strengthened after the content of the FED minutes became known. It is not possible to speak of a direct correlation between the content of the minutes and the upward movement of the Dollar beyond the reversal of the stock markets that produce an increase in risk aversion.
With this, the Dollar is bought as a safe haven.
In reality, this has not been more than an excuse for technical correction, the possibility of which we had commented on in previous analyzes and which has begun to take place driven by the profit-taking of short USD positions that reached a historically high figure in the market.
EUR/USD has lost more than 100 pips since yesterday, and if this trend continues, it could head towards the central support zone located at 1.1700.
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