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Risk sentiment on the rise

Miguel A. Rodriguez
Miguel A. Rodriguez
05 November 2022
The data on the US Producer Price Index confirmed that inflation had peaked. The PPI followed the CPI reading and marked a substantial drop compared to what was expected by market analysts

But the debate about whether the Fed should continue with aggressive interest rate hikes or not still goes on in the market.


Some people still favor the Fed to hike the rates because inflation is still high, despite the recent price data. The figures are insufficient for the Fed to slow down the rate increases. The messages transmitted by some Fed members in the last two days do not point to any change in the central bank's approach. The objective remains the same: to put an end to inflation. But, indeed, they have also shown the intention of not causing a recession, which may indicate that the next increases will be lower. Now, the market expects a rate increase of 50 bps in the next meeting and not 75 bps as was expected before the publication of the CPI and PPI.


After a pullback following yesterday's PPI release, bond yields rebounded above 2.80% mid-session. This movement was reflected in the stock indices that began the session with gains of over 1% and then fell back after the rise in market interest rates.


In any case, what is certain is that the risk sentiment has improved notably, and the short position held by most hedge funds could be in danger.

From a technical point of view, the latest advances of the Wall Street indices have taken them to positions that can already be considered the beginning of a bull market. Especially the S&P500 is already trading above the 100- and 200-day moving averages.

The US Dollar has also weakened after the data, although more marginally yesterday.


EUR/USD traded up to the 1.0358 level yesterday, which is the 0.618% Fibonacci retracement of the last leg down. Above this level, the pair would gain bullish traction and head towards the 1.0600 zone.

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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.