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High volatility in the stock indices market

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Miguel A. Rodriguez
Miguel A. Rodriguez
05 November 2022
High volatility in the market yesterday, with ups and downs in the stock indices. Nasdaq fell 0.70% during the session and ended the day practically unchanged.

Stock markets failed to witness further extensive corrections. Fund managers expect market interest rates to rebound close to maximum levels seen at the end of October before the Federal Reserve would announce the start of tapering and lean towards a more dovish bias than expected.

The debate on inflation is still very present among investors and central bank officials. The discussion of a potential need to raise interest rates is recurrent, with the governor of the Bank of England explicitly acknowledging it and some members of the Fed in favor of finalizing asset purchases earlier than initially planned.

The federal funds futures already anticipate increases in interest rates of more than 0.50% for next year. But the enormous liquidity that exists in the market prevents the stock market from correcting, something that should have happened in similar circumstances, even more if we take into account that the growth forecasts at a global level have been revised down, especially due to supply chain problems and high transport and energy costs.

In the foreign exchange market, the Dollar behaves as it usually does when the interest rate rises, it strengthens.

The interest rate differential favors the Dollar, and the selling pressure on the pair EUR/USD remains with a fall of 75 pips since yesterday. This is because we have a weak euro, caused by the monetary policy of the European Central Bank, which will inevitably remain expansive for some time compared to the rest of the central banks.

From a technical perspective, the pair has already broken important support levels and is approaching the 6.18% Fibonacci retracement of the bullish leg that began in March 2020, located at 1.1292, below this level it makes its way to the theoretical target of the large double top that was formed between January and May 2021 and that is located between the area of ​​1.1150 and 1.1200.

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Sources: Bloomberg, Reuters

 

This information/research prepared by Miguel A. Rodriguez does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. The research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views and consequently any person acting on it does so entirely at their own risk.The research provided does not constitute the views of KW Investments Ltd nor is it an invitation to invest with KW Investments Ltd. The research analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report.The research analyst in not employed by KW Investments Ltd. You are encouraged to seek advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit that conforms to your specific investment objectives, financial situation, or particular financial needs before making a commitment to invest. The laws of the Republic of Seychelles shall govern any claim relating to or arising from the contents of the information/ research provided. 

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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.