Prepare for US GDP, ECB results and Fear Index

26 jul 2019

At yesterdays' meeting, the Governing Council of the European Central Bank (ECB) decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.40% respectively. Nevertheless, the comments from the Central Bank turned out to be very dovish, opening the way to further monetary easing in September. For the euro, of course, this is not a positive sign.

However, we do not throw the euro under a bus yet, because next week’s meeting of the Federal Reserve will likely mark the beginning of a prolonged period of lower interest rates, in our opinion, this event is more important than words about future easing (in the battle of facts with expectations, we will give preference to facts). Also, the euro is supported by the head of the European Central Bank, Mario Draghi, who said that officials had not discussed the rate cut. Our position is unchanged - we buy EURUSD with current price with stops lower than 1.11.

The data on the US GDP for the second quarter will be published today. GDP probably expanded 1.8% in the second quarter, down from 3.1%. If the growth is 2.2-2.5%, then the dollar, perhaps, is not in danger until Wednesday. But if 1.8%, it cannot avoid sales.

So, dollar current price seems to us extremely attractive for its sales.

Meanwhile, the VIX Index ( it is also known by other names like "Fear Gauge" or "Fear Index) dropped to Multi-Year Lows. That is, traders and investors have calmed down. That calls into the question the safe-haven assets growth demand and explains yesterday's weakness of the yen and gold. Given then the level of volatility in gold has increased, we prefer to trade with the Japanese yen. Its purchase against the dollar is still relevant for us.

Our trading recommendations for today: We will continue to look for opportunities for selling the dollar across the foreign exchange market entire spectrum, buying the pound against the dollar as well as against the euro, selling oil and the Russian ruble, and also buying the Japanese yen against the dollar. As for gold, in the oversold we buy and in the overbought area we sell gold.