News background and trading ideas for 25/10/2018

25 oct 2018

Yesterday the Bank of Canada to be expected hiked the rate. The reaction of the Canadian dollar totally justified our forecasts, so those our readers, who follow our trading ideas, could easily add 100 points to their total profit.

Speaking of interest rates we cannot overlook today’s meeting of the ECB. There are no expectations of material surprises from it (the rate will be unchanged), but there’s the real potential for verbal interventions. This refers to statements by Mario Draghi that in 2019 the ECB can begin to tighten monetary policy and raise interest rates. However, we are quite skeptical that such statements will follow today. Especially if we take into consideration yesterday's data on business activity indices in the Eurozone, which were extremely weak. So we see no reasons for Euro purchases so far.

Since the pound continues to fall in the foreign exchange market, we cannot avoid a situation with Brexit. The case continues to be extremely difficult. Tensions with EU were replaced by domestic policy issues. We will not go into particulars of these squabbles. Want just to admit that all this is a news noise which has no influence on a strategy, and therefore on our position. We continue to recommend buying the pound. The motivation is the same - will be the conclusion of the deal which triggers the growth of British currency. Actually, we are not alone in this opinion. The survey of experts about the Brexit results and the future of Theresa May (the topic of her possible resignation from the Prime Minister post is under active consideration) shows that on March 29, 2019, the UK will leave the EU and the head of the country will continue to be Teresa May. About 90% of respondents believe in it.

Speaking about other trading ideas, recall the feasibility of finding points for buying gold, while the asset is above 1210, as well as sales of oil and the Russian ruble. Considering the oil, by the way, according to data from API, was recorded the maximum growth of oil reserves in the USA over the past couple of years (increased by almost 10 million barrels). What simply confirms our basic trading idea. As for the Russian ruble, even high oil prices cannot facilitate its growth. Basically, the reason is obvious - the Russian economy is in bad shape and it is worsening. Particularly, the head of the Accounts Chamber of the Russian Federation, Alexei Kudrin, recently said that the Russian economy is facing a bleak future and GDP growth is below 1%. It’s hard to disagree with him: investors do not trust Russia, increasing the tax burden undermines the already weak Russian economy, and possible new US sanctions can destroy the remnants of hopes for a way out of the turmoil. Speaking of sanctions, it is precisely the month of November that accounts for the next "deadly" package of sanctions from the United States. So do not forget to sell the Russian ruble at every opportunity.

The US Stock Market, meanwhile, is sinking ever deeper. Indeed, the Nasdaq only lost 4.4% yesterday, which resulted in a loss of about $33 billion by the richest people on the planet. For example, Jeff Bezos lost $8.2 billion yesterday as Mark Zuckerberg lost $3.2 billion. The main item on the agenda is whether the correction will turn into a full-fledged downtrend.