News background and trading ideas for 06/11/2018

Yesterday passed without special surprises. Generally, there is nothing strange, the key events will take place today (particularly tomorrow) - referring to midterm Congressional elections in the USA, and consequently the announcement of its results (supposedly, the outcome will be known on early Wednesday). More precisely read about the results and possible response of the dollar on it in our separate review.

It’s worth reminding about Thursday and the outcome of the FOMC meeting. So, markets have something to focus on and perceive other developments as a kind of “white” noise. Nevertheless, you need to keep yourself up to date with events, as well as understand where information winds are blowing.

This morning, the Reserve Bank of Australia left the parameters of monetary policy unchanged while welcoming the current path and its outcome. The Australian dollar did not react to this news in fact - it was fully taken into account in its price.

One of the informational winds has definitely been changing its direction recently and blowing ever more strongly into the pond back, pushing it upwards. We find more and more evidence that markets are beginning to believe in a deal between Britain and the EU. Particularly, analysts at Nordea Bank AB recently said that the pound could strengthen by 5% if the treaty goes through, and Mizuho Bank predicts a pound rise to 1.35 within two days after the deal is announced. Recall that we are even more optimistic in our forecasts and see a pound exchange rate above 1.40. Well, the media is increasingly forcing the issue of success in negotiations. Initially, the Times reported that British banks might be allowed to remain on European markets, and then Sunday Times reported that British Prime Minister Theresa May bargained from Brussels to leave Britain as part of a customs union with the EU.

Regarding other trading ideas for today, we continue to recommend sales of oil and the Russian ruble. Considering that the chances for the Democrats to win and taking control over the House of Representatives are quite high. The probability of a new sanctions package against Russia is increasing, and this is against the background of falling oil, almost a verdict to the Russian ruble. As for oil, the waivers of the United States to buy Iranian oil by eight countries largely reduces the effect of these sanctions for the oil market, which, amid of maximum oil production from Russia, the United States, and Saudi Arabia, clearly argues in favor of a further decline in oil prices.

Since it is not entirely clear with the outcome of elections in the USA, bursts of volatility in gold are viable, so caution should be exercised. Let’s remind that we still prefer the asset purchases.