News background and trading ideas for 15/01/2019

15 janv. 2019

Since today the UK Parliament has to issue its verdict due to the text of the Brexit deal between EU and Great Britain, the highlight attention in our review we will devote precisely to this issue, because there is a ghost of another flash crash in the air or at least the market’s overreaction in pound’s pairs.

But first, let's briefly go through other aspects of information being. China continues to disappoint. Data on the trade balance showed a decline in both imports and exports of the Middle Kingdom. And this is another alarming signal for the global economy. So we continue to buy gold and Japanese yen. However, there is hope - tax reform in China (we are talking about tax cuts totaling up to $ 300 billion).

In the USA the longest shutdown in history is continuing. Recall, every day of such downtime - this is tens of millions of losses for the country’s economy. On top of the cake may become the declaration of a state of emergency in the country. Generally, nothing good for the dollar, so we continue looking for points for its sales on every front of the foreign exchange market, excluding maybe the Russian ruble. It’s even worse, so you can buy dollar against the ruble.

Let’s come back to the Brexit. Yesterday’s increase of the pound - it goes to Theresa May, who has claimed that there will be no Brexit at all rather than exit without the deal. Amid these statements, we need to refresh in our memories the main scenarios.

Parliamentarians vote “for” the current deal. Everything is clear here, the pound goes up and this increase may stretch up to the spring’s maximums in the area of 1,43-1,43. Amid current reality, such vote “for” is almost unreal.

Parliamentarians vote "against." This is the most likely scenario, but its consequences are far from being so obvious. Yes, the most negative option is hard Brexit or exit without a deal. Here are some examples of the possible consequences of this: UK GDP will fall by 8%; housing prices will drop by 30%; commercial real estate prices will collapse by 48%; unemployment will rise to 7.5%; inflation will jump to 6.5%. Well, a pound, according to some estimates, in such a case will lose up to 25% of the cost and may toward below parity in pair with the dollar.

But this is not the only scenario. Rather, on the contrary, events will not develop in the same way, but in one of the following ways: a second vote in Parliament; renegotiation between the EU and the UK; general elections in the UK; a repeated referendum, also postponing the UK exit from the EU. From March 29 to some undetermined date in the future. So each of these options to some extent plays into the hands of the pound.

So, in total, our recommendation for today is buying the pound instantly in case of positive force majeure or after its decline following the outcome of the vote. After the initial shock and the sell-off wave are passed after results of the collapse of the vote, one of the alternatives, voiced above, will surface and the pound will jerk up again.