The end of the positive, pressure on the pound & BoE

Jan 16, 2020

The US and China have signed documents for the first phase of the trade deal. It would seem that this has been expected for a very long time and this is an excellent occasion for a mass exodus from safe-haven assets and another injection of capital into risky assets. But it was not there. Gold yesterday was more than comfortable, and the Japanese yen in the foreign exchange market stopped pouring.

The reason for this market behavior is that most US tariffs on Chinese goods will continue until the second phase of the agreement is signed. So, we can again recall the slowdown in the global economy as a result of trade wars, and the ghost of a global recession has become more tangible.

In general, we continue to recommend the purchase of safe-haven assets. The inability of gold and Japanese yen sellers to use their main reason to intensify the decline in prices for safe-haven assets very clearly signals their weakness.

Another pretty important event yesterday was the publication of inflation data from the UK. Unexpectedly, for most experts, inflation slowed to a three-year low (annual consumer price inflation in the UK fell to 1.3% in December from 1.5% in November). Considering that the issue of lowering interest rates by the Bank of England has recently been actively accelerated among analysts, now there are many more reasons for this. Actually, many are waiting for a rate reduction this month.

Formally, the pound is a strong bearish signal. But we will not rush to sell it anyway. Recent events show that Brexit has been and remains the main driver of the pound's dynamics. It is news from these fronts that can provoke the formation of directional movement in pound pairs.

And since Brexit is going according to plan so far, we see no reason to revise our recommendation for pound purchases intraday and medium-term. Recall that with favorable developments, the growth potential of the pound paired with the dollar is about 1000 points.

From yesterday's data, it is worth noting also the weak data on industrial production in the Eurozone: -1.5% with a forecast of -1.0%. In this light, recall that the EUR/JPY pair is still at excellent points of sale.

Today, all financial markets are focusing on US retail sales data. We will prepare for weak data, and accordingly, we will look for points for its sales in the foreign exchange market. The best candidate for this role is the USD/JPY pair.

We consider the dissolution of the Government in Russia and the plan to redistribute the system of power in the country as an excellent opportunity to sell expensive Russian rubles. The usurpation of power from the point of view of modern history has rarely led to something good for the country's economy.