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LONG News background and trading ideas for 12/10/2018

The US stock market has covered a wave of panic, but yesterday it was somewhat overcome, helped by data on consumer inflation in the US. It came out worse than expected in forecasts and somewhat reassured investors. Everybody worried about the impact of the Fed on the US economy too much.

However, it is too early to relax. Gold yesterday went beyond the range in which it had been held for a couple of months, and this is a strong enough signal that the markets are scared. And the Index of Fear VIX just sailed off to the maximum values over the past few months. In general, for a variety of signs, everything may well be dangerous. In this light, on the one hand, trading should be more cautious, and on the other, quite exciting trading opportunities are opening up. Let’s talk about them.

In moments of panic, markets tend to hide in safe-haven assets. Traditionally, they include gold in the commodity markets and the Japanese yen, as well as the Swiss franc in foreign exchange. Besides, in recent times the American dollar has often played the role of an asset of asylum.
In this light, buying gold and the Japanese yen looks like quite interesting trading ideas. Buying gold in the view of yesterday’s breakdown of the upper limit of the range especially seems to be interesting.

Our long-term idea - selling oil - looks even more attractive in the light of current events. Which, though, confirms the movement in asset prices. Official data on oil reserves in the United States showed an increase of 5.99 million barrels, with a forecast of 2.62 million barrels growth, which is generally a bearish signal for oil. Like the news that OPEC lowered its forecast for oil demand growth in 2018.

Do not either forget selling the Russian ruble whenever possible, especially in the light of such oil dynamic.

The good news continues to come from the fields of Brexit. EU chief negotiator Michelle Barnier stated that the deal is nearing completion, and the main problem (border with Northern Ireland) is on the verge of resolution. This is entirely consistent with our basic trading idea - buying a pound because of its current undervaluation. We continue to monitor the situation. The main events will take place next week. October 17-18, the EU summit will be held. If an agreement reached (we consider the word “when” more suited), the pound has chances to gain to the area of 1.41-1.43. Some experts even sound the figure of 1.55.
Today regarding macroeconomic statistics will be relatively calm. But volatile explosions are possible - it is very hectic on financial markets so far.