News background and trading ideas for 21/01/2019

Last week has been dominated by the Brexit, but despite on wealth of news and developments, there was no progress. Basically, all the same, and still where we are. Sentiments are changing in the markets. If the vast majority of participants in the foreign exchange market were inclined to bury the pound before the vote in Parliament and considered that the “harsh” Brexit is inevitable, now it has come to many that it is too unprofitable for everyone. So, some kind of alternative is waiting for us. The most likely development of events is discussions with the EU on the base of the settled position of Great Britain (following the results of agreements with the oppositional authorities of the Parliament), the formation of a new text of the agreement, the second vote in Parliament and a “soft” Brexit. Although for the implementation of this scenario, it is almost certain that a postponement of the UK exit from the EU from March 29 to a later period will be needed. Of the other alternatives, we can note a repeated referendum or the UK’s refusal to leave the EU because of the inability to organize the exit on time.

Recall, we’ve been talking since September that Brexit would be completely long-standing and painful, but will end with a happy ending in one way or another. Which is why we’ve been recommended and keep recommending purchases of the pound, which is undervalued very much.

As for other significant news we can’t pass by the shutdown in the USA. It already became the longest one in history. Considering how polar the positions of the parties are, this is positively an issue, the consequences of which the US economy will feel for a while even after its settlement. Therefore, we believe that dollar sales remain relevant this week.

Among the central market’s expectations, it’s worth admitting trading talks between the US and China. Parties are already the second week talking about progress, but there are no visible results yet.

Nevertheless, the general level of concern and nervousness on the markets clearly decreases. In this regard, we decided to change our position on safe-haven assets and recommend its short-term sales. First of all, we are talking about the sales of gold and the Japanese yen.

As for oil, while the asset (WTI brand) would not be above 53.50, oil should be sold mid-term and intraday. However, a confident breakdown of 53.50 will be a very strong upward signal. In this case, it will be necessary to turn over in the asset, at least temporarily. It makes no sense to go against the will of the market.

As for this week, in general, it will develop in line with the fundamental information trends listed above. From the news it is worth noting first of all the data on China’s GDP (already out, +6.4% of GDP growth in the fourth quarter, which is the lowest since 2009), statistics on the UK labor market (Tuesday), the Bank of Japan’s decision on the parameters of the monetary policy (Wednesday), the announcement of the results of the ECB meeting (Thursday) and the block of statistical data on the USA on Friday.