Preparing for Fed verdict, analyzing the state of the oil market

18 Sep 2019

The attacks on Saudi Arabia's oil infrastructure led to the biggest jump in global prices. The correction was not observed until the American session started. We recommended on Tuesday to open short positions in oil because we were confident in the corrective movement and the end, the recommendation justified itself at 100%. In just 10 minutes, oil lost over 4%. The reason for the decline was the information that Saudi Arabia has officially confirmed - production capacity will be restored by the end of September. And to compensate for losses in production associated with the attack, the Saudis will increase production up to 12 million bpd by the end of October. So those of our readers who trust our experience and analytics should have made good money.

As for trading on the oil market today, then after the strongest fall yesterday, everything looks rather ambiguous. And although we continue to incline toward asset sales you should be careful with that.

As for the Fed and the Open Market Committee. An event that was devoid of intrigue just a couple of weeks ago (100% of traders set a minimum rate reduction of 0.25) may surprise. The current probability of a Fed rate cut is slightly above 60%. And if you take into account that yesterday's data on industrial production in the USA were frankly surprising: 0.6% m / m with a forecast of + 0.2% m / m and July outcome -0.1% m / m, the Fed can keep the rate unchanged.

Our position remains unchanged. We expect the rate to be lowered by 0.25%. There are enough reasons for this: an interest rate reduction by ECB rate last week, a deterioration of the US labor market and the US economy condition as a whole, threat of a global recession and intensified trade war, multiplied by the risk of a US military campaign in Iran - all of this obliges the Fed to act and reduce the interest rate to prevent the US economy downfall. Anyway, reinsurance is better than solve the consequences duo to the lack of action.

Accordingly, our position on the dollar today is also unchanged - we will sell it. At the same time, we do not forget the euro and its movement after the ECB meeting last week. The probability of false movements is great and it is extremely important to follow a predetermined plan. But at the same time, it is worthwhile to put stops so as not to go against the market will.

In addition to the decision of the Fed and the subsequent explosion of volatility in the foreign exchange market, it is worth paying attention to inflation data from the UK and Canada.

As for the UK. Despite Johnson's unsuccessful meeting in Luxembourg, the pound did not react that much. This means that we will continue to look for an opportunity to buy the British pound. First of all, against the euro and the US dollar.

The tactics of buying gold in the area of local lows continue to be justified, so we will continue to adhere to it today.