News background and trading ideas for 26/10/2018

Yesterday was a relatively calm day in the financial markets. Stock markets were licking their wounds after Wednesday selloff, and the Nasdaq index even showed the peak daily gain since March. The foreign exchange market has been also without panic - the ECB expectedly left the rate unchanged, and Mario Draghi did not frighten the markets with an early tightening of monetary policy in the Eurozone. In commodity markets was also without a volatility surges.

But do not take this tranquillity as a signal to relax. Rather, it may be a lull before the storm. It is likely that today market volatility will increase sharply again. What can catalyse it? At least data on US GDP. Recall that at 3.30 pm will be published preliminary data for the third quarter. Since preliminary data are usually very poorly forecasted by experts, there is every chance that the actual value will be very different from the predicted one (the current consensus is around of 3.3–3.4%).

What do we expect from this data? - a positive surprise. We mean that they will come out better than forecasts. A justification - Trump’s tax reform has not exhausted all of its positive boosts yet, moreover, the US economy itself has not demonstrated frankly failures in the third quarter. The main issue - the increasing trade deficit (recall, net export balance is one of the four components of the formula for calculating GDP by expenditure). Well, our core trading idea for Friday - buying the dollar.


Buying a dollar, however, against the whole basket is not necessarily. We continue to stay bulls on the British pound and recommend in the midterm buying the British currency, including against the dollar. As the Euro is obviously experiencing problems, so the single European currency is a great candidate for selling against the dollar today.

The sale of oil and Russian ruble remain in the highlight of our trading ideas.