While the USD is caught-up, US indices break through historical values – Market Analysis

While the USD is caught-up, US indices break through historical values – Market Analysis

Shy signs of political agreement push USD into limbo

In the absence of relevant economic figures to be released this week, the market remains in choppy trading with modest daily gains in the stock markets driven by the publication of sales figures.

In some cases, these figures came in better than expected, as for pharmaceutical companies, Novartis AG or Roche Holdings AG.

US market stimulus talks

Negotiations on the North American stimulus plan do not show significant progress. However, the market is very attentive to any news in this regard since its approval would be an essential factor in investment decisions in a wide variety of assets.

The Speaker of the House of Representatives, Nancy Pelosi, has stated that they would be willing to accept a reduction in the amount of the package, thereby approaching the Republicans' position, and that has aroused the interest of investors.

Everything will ultimately depend on the size of this stimulus. A figure close to the bottom of the range (it oscillates between 1 and 3 trillion Dollars), would not be received positively in the market.

At the moment, it is still expected that something may emerge during this week, including the weekend.

The approval of a stimulus package endowed with an amount that the market considers satisfactory would have to be above 1.5 trillion Dollars, positively affecting the USD, at least immediately in the short term.

USD performance

Although the structural trend of the Dollar continues to be downward and will probably continue in the medium and long term, especially if we take into account that during the electoral period the US currency tends to depreciate, even more so when the chances of a defeat of the current president are high, a corrective upward movement of the US Dollar is very likely in the short term, a movement that would be supported if the stimulus package is approved.

From a technical analysis point of view, this corrective move also makes sense.

Dollarindex, a weighted index of the Dollar's prices against its main counterparts, of which the weight of the Euro exceeds 50%, after falling to a minimum of 92.12, shows clear signs of oversold and exhaustion of the downward movement in the daily chart whose RSI14 has formed a bullish divergence. A correction to the 94.00 area would be possible.


The same occurs with GBP/USD, which after a continuous upward movement since the end of June, the daily chart is in a situation of overbought with a bearish divergence in RSI 14. This divergence points to a loss of momentum in this trend, which could lead to corrections down to the 1.3000 area.

In the case of the Sterling Pound, and as we approach the month of September in which the Brexit talks will resume, a more profound downward movement would be possible if, as everything indicates, no progress is made on an agreement and the possibility of a hard Brexit is getting higher.

The information presented herein is prepared by Miguel A. Rodriguez and does not intend to constitute Investment Advice. The information herein is provided as a general marketing communication for information purposes only.

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