Positive risk sentiment continues to prevail in the market – Market Overview – November 11

By: Miguel A. Rodriguez

10:19, 12 November 2020

1605105979.jpg
Today, not only are cyclical stocks rising, but technology stocks are also finding demand in the market, with the Nasdaq index rising just over 1% on the day.

The yields of the American treasury bonds remain at high levels after the outflow of funds sheltered in these assets; in the case of the 10-year American, the yield is approaching levels of 1%, levels not seen since last June.

This rebound in the yields of US Treasury bonds is the only reason for the Dollar to have strengthened against all currencies in recent days.

Before the elections, the US Dollar remained in a clear downward trend that was only modified when an event of risk aversion appeared in the market.

FX Majors

The Yen

Now, however, the market risk sentiment is positive, and the Dollar is strengthening not because it acts as a safe-haven but as a result of a rise in long-term interest rates that primarily influences the price of the USD against the Yen, a currency pair with a high correlation.

USD/JPY has risen more than two figures so far this week in a clear move back to the market's risk appetite. However, the downtrend of the Dollar is still maintained as long as the pair remains below 106.30.

The Euro

Against the Euro, the greenback is also strengthening.

In this case, the statements of members of the ECB's governing council, such as Knot, who have stated that they do not exclude any type of monetary policy measure for the next meeting in early December. The market expects some action from the ECB, including the possibility of a cut in the discount rate, although this measure would not be very significant given the current low levels.

The EUR/USD trend continues to move sideways since August, between 1.1600 and 1.1950. Everything will depend on what the ECB decides to implement at its next meeting.

Suppose it is aggressive in monetary stimulus measures, for example, by expanding the asset purchase program and/or reducing the discount rate. In that case, the pair could fall to the low of the current range around 1.1600. But if the ECB performance disappoints the market with a USD that sooner or later will return to its downtrend, the pair would try to break the highs between 1.1950 and 1.2000.

The ECB will undoubtedly take this circumstance into account as a strong Euro would act as a counterweight to its monetary policy, reducing its effectiveness.

Share this article

This information prepared by capex.com/za is not an offer or a solicitation for the purpose of purchase or sale of any financial products referred to herein or to enter into any legal relations, nor an advice or a recommendation with respect to such financial products.This information is prepared for general circulation. It does not regard to the specific investment objectives, financial situation, or the particular needs of any recipient.You should independently evaluate each financial product and consider the suitability of such a financial product, by taking into account your specific investment objectives, financial situation, or particular needs, and by consulting an independent financial adviser as needed, before dealing in any financial products mentioned in this document.This information may not be published, circulated, reproduced, or distributed in whole or in part to any other person without the Company’s prior written consent.
Past performance is not always indicative of likely or future performance. Any views or opinions presented are solely those of the author and do not necessarily represent those of capex.com/zaJME Financial Services (Pty) Ltd trading as CAPEX.COM/ZA acts as intermediary between the investor and Magnasale Trading Ltd, the counterparty to the contract for difference purchased by the Investor via CAPEX.COM/ZA, authorised & regulated by the Cyprus Securities and Exchange Commission with license number 264/15.  Magnasale Trading Ltd is the principal to the CFD purchased by investors.