On current market fears, Brexit failure and oil purchases

9 oct 2019

This week, markets have completely focused on the negotiation process between the US and China. We will closely monitor as well as the dynamics of safe-haven assets, which fully correlates with a market statement regarding the outcome of the negotiations.

It is already obvious that the success of negotiations would affect gold - a decline in the are of 1420 +/- seems very likely. But the failure in the negotiations process with a high probability will end with a re-test of the highs of the beginning of September, that is, 1550.

It is difficult to say which variant is more likely. Yesterday, the markets supported the second one. This was evidenced by the dynamics of safe-haven assets, the VIX Fear Index and the general news background - the parties took quite similar positions and whether they can get a compromise is not yet clear. This refers to the news that the US blacklisted 8 Chinese companies, and China in response promised to take the same measures. In general, not the best background for successful negotiations.

Total: the situation is developing, but it is extremely favourable for trade in gold and the Japanese yen. Patience and approach from good points practically guarantee earnings. As for the direction, we tend to buy both gold and the Japanese yen. But once again we note: purchases are relevant in the absence of fundamental contraindications. If there is news of a breakthrough in negotiations appears, purchases should be postponed at least until the details are clarified.

In addition to the United States and China, the EU and the United Kingdom exchange mutual claims. The negotiation process is also far from a successful end and there is a chance that it would lead to paralysis. Johnson is infuriating the EU. And his last call Merkel, for many created the feeling that there would be no deal. But we continue to believe in common sense and the victory of global economic interests over local personal ambitions. Also, Johnson's failure to make a deal does not mean an automatic exit without a deal. Recall, Parliament obligated him to ask for a postponement if the deal was not agreed before October 17. So the purchase of the pound after yesterday did not become hopeless. Rather the magnitude of risks per position decreased, while profits increased.

In the oil market, WTI prices meanwhile have come to basic support around 51.20. Although we are medium-term oil bears, buying with current prices seems like a good deal. The stops - below 51, but the profit set up in the area of 56 (if the correction begins, then this will be its minimum goal). But again, we’ll warn you f breakdown of negotiations between the US and China could hit oil value - in this case, support 51.20 will not stand. So we are acting with an eye on the news background.