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Dollar falters against basically, any other currency – Market Overview

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Miguel A. Rodriguez
Miguel A. Rodriguez
05 November 2022
In the last market comment of this year, I take the opportunity to wish everyone the best in the coming year, which will undoubtedly be better than in the past.

As is customary on these dates, liquidity is substantially reduced due to the lack of market participants, and movements tend to be broader or accentuate in some cases.

The Greenback

This is what we are witnessing with the US Dollar.

Although the American currency trend has indeed been downward for months, today, that momentum has been exacerbated, leading some pairs to high levels not seen since 2018 without any event or fundamental news behind them that justifies them.

The Dollar has weakened to minimum levels not seen since May 2018 in general terms, even though the yields of US treasuries, which are usually the catalysts for these flows, have not decreased from current levels in the last two months. In the case of the 10-year American bond, it remains above the 0.90% zone in a very stable movement.

However, the Federal Reserve maintains its aggressive asset purchase policy, and reference interest rates are at historic lows.

This may be since the buying flows of American debt have decreased, something that would negatively influence the price of the dollar, or because investors would be aware of inflation data that could curb the buying appetite of these assets in case of rebounds.

In any case, the Dollar continues on its way down.

EUR/ USD broke the previous high of 1.2268, where immediate resistance was located and is approaching the 1.2300 area.

From a technical point of view, a close in this area would open the way to a large price concentration zone around 1.2400. But the overbought situation of the daily RSI must be considered, this indicator, in which signs of bearish divergences begin to appear, if confirmed, would put a brake on the current movement.

It would be necessary to determine if the trend of flows in the latter two days is due to an effect at the end of the year, usually more volatile or more significant fundamental support. For this, it will be interesting to observe the evolution in the first days of January.

The British Pound

The same goes for GBP/USD. After the timid reaction post the agreement on Brexit that anticipated a typical movement of "buy the rumor and sell the news," the pair has retaken the bullish momentum strongly and has managed to overcome the psychological barrier of 1.3500, paving the way from a technical outlook to the staging area around 1.4000.

But like the Euro in its price against the Dollar, this pair shows signs of exhaustion of this bullish leg in the daily RSI indicators with bearish divergences that could put a brake on buying flows.

The details of the Brexit agreement, still pending expert overview, and the negotiations on the financial sector that will take place later will be essential factors to consider for the future evolution of the British Pound.

Sources: Bloomberg, Finacial Times.

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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.