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No news (from US politicians) is good news – Market Analysis

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Miguel A. Rodriguez
Miguel A. Rodriguez
05 November 2022
Lack of political agreement in the US strenghtens equities

Stock markets continue to tiptoe in the hope that, at some point, an agreement will be reached on the stimulus package being negotiated between Democrats and Republicans in the United States, without any clear clue about an immediate commitment.

Everything indicates that the process will be extended in time, but in any case, the market is betting on it as the starting gun for a new rally to historical highs. 

USA500 is trading very close to its all-time high today at 3397, and it just needs a boost to break these levels upward and start a rally without major obstacles from a technical perspective. 

RSI 14 daily is close to overbought levels but shows no sign of bearish divergence, so according to this indicator, there are no signs of fatigue on the rise yet.


Trade War & the USD

News of a continuous fight between the American and Chinese governments in the commercial sphere occurs daily with threats of bans for some Chinese technology companies by the Americans and minor Chinese retaliation. 

Still, the market seems to have ignored this confrontation that is more of a political than economic nature. 

That, for the moment, is not going to have a significant adverse effect. However, it will always be necessary to be attentive to it.

The US treasuries have recovered part of the losses of the last days, and yields have fallen again, with Tnote10 below 0.70.

The most immediate effect of this movement is reflected in the price of the US dollar. 

Lower interest rates and outflows of the Dollar in the face of a scenario of better risk mood, have taken DollarIndex to lows not seen since 2018.


Major FX Pairs

EUR/USD has managed to overcome highs due to the Dollar's weakness up to the 1.1940 area, levels not reached since May 2018. For fundamental reasons, the pair has an upward trend that could take it to 1.2100-1.2200.

It shows signs of fatigue if we look at the daily RSI, which, in a technical retracement from current levels, could form a bearish divergence daily. 

If this occurs, we could see corrections to the 1.1700 area or below. At the moment, it only finds intermediate resistance at the 1.1960 area.


USD/JPY has fallen again at 104.21 after a week of recovery from lows. The last rally began with a sharp upward rebound with all the hallmarks of a BOJ intervention, although it was not disclosed as such. 

The future evolution of the Dollar against the main currencies, not only against the Yen, will be influenced by the behavior of the USD/JPY pair. 

The structural trend is bearish, but the market will be very aware of possible new upward movements that point to the central bank's interventions that will try that the Japanese currency does not revalue in a disorderly way against the Dollar, especially in these critical levels close to 100.

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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. 

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