News background and trading ideas for 03/01/2019

3 Jan 2019

Yesterday was the day of unexpected dollar recovery. One of the presumable explanations is the growing demand on the safe-haven assets, and very often precisely dollar plays such a role in the foreign exchange market. Kind of trigger became information from China, specifically the release of statistics on the level of business activity in China. This is the Caixin Purchasing Managers Activity Index (PMI), which dropped to 49.7 from 50.2 and reached its lowest level since May 2017. These figures confirmed worries in the markets, which were caused by the publication of the official PMI index for China on Monday (also turned out to be below 50, namely, 49.4 which is the minimum since the beginning of 2016). Recall that the values of the PMI indices below 50 indicate a decrease in business activity. So, the markets start the year exactly like a year before - concerns about the fate of the Chinese economy and the world economy as a whole.

Apple as well has poured oil on the flame, suddenly reduced sales forecasts for 2019.

The reaction of the markets to its UK data on the PMI in the manufacturing sector was quite interesting. The index came out much better than was in the forecasts: 54.2 against analysts' expectations of 52.5. But instead of buying, the pound was sold out, because they perceived such dynamics of the index as confirmation of the implementation of the “harsh” Brexit. That is, a sharp increase in procurement activity is associated with the preparation of industries for the unfavorable outcome of the negotiation process. However, it is almost over to guess and wait. Next week, it may move from the current dead point. We continue to hold a long position in the pound, based on a positive outcome.

Ongoing developments in the fundamental background have so far not had an impact to the list of our basic trading recommendations: mid-term sales of the Russian ruble and oil, purchases of gold and the Japanese yen, sales of the dollar, at the forefront against the British pound and the Canadian dollar.