Getting ready for a volatile day: pound and dollar have the bull

3 Sep 2019

Labor Day in the US and Canada led to a relatively calm day on the financial market. But today everything can change radically.

On the one hand, Hurricane Dorian threatens to become the most powerful in history. This means that the potential damage could also become the most significant. Yesterday we promised to show the way how to make money on this kind of natural force majeure.

Here are a couple of facts. Irma was the first Category 5 hurricane (like Dorian) provoked a sharp decrease in the number of new jobs created out of a farm sector in the United States (NFP indicator) in September 2017. With an average 200K number, its September figures were (the peak activity of Irma in the month of August) -33K (!). In 2018, hurricanes were less destructive, but the September NFPs came out below forecasts 30% (!)and much lower than the average.

Thus, if the hurricane turns out to be quite destructive, we can expect weak figures for the US labor market for September-October. Accordingly, it will be possible to prepare in advance for the failed data and make money on it.

But the consequences of Dorian are not clear yet and will manifest after some time, but in the UK everything can be much more dynamic. Today, the UK Parliament is returning from recess with the understanding that they have less than 10 days to stop Johnson, because on September 12 his activities will be suspended until mid-October (the UK will leave the EU on October 31).

That is, today all sorts of sensational news are possible to happen. There are a lot of development options of events, starting from the law prohibiting exit without a deal, ending with the resignation of the Government or early elections.Thus, the dynamics of the pound so far seems completely unpredictable - it will be entirely determined by the results of the parliamentarians activities.

Let's try to give an approximate plan for working with the pound, depending on certain results. We sell the pound if the Parliament can accept nothing, as this is likely to mean a "hard" Brexit. We buy the pound if a law is passed to ban the exit without a deal or if a vote of no confidence is put forward to the Government. We regard early elections as a neutral option with positive for the pound since it will at least delay the “hard” Brexit.

Also, today it is worth paying attention to the ISM index of business activity in the USA, Michel Lagarde speech, as well as the index of business activity in the UK.

Speaking of our other trading preferences for today, we note that we will continue to sell the euro, buy gold and the Japanese yen, sell oil and the Russian ruble.