The foreign exchange market under pressure Brexit and trade wars

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The Chinese response in the trade war to the recent actions trump was not the most negative, as it was not symmetric in the inputs in response to the actions of trump’s duties. There is so much more geoblogging rates American import to respond symmetrically and the volume and level of tariffs.
China put in an impossible situation: either to accept the fact that the United States, using the fact that symmetric response is further impossible, will still tariff policy to change the balance of trade in their favor, or to act asymmetrically, giving Trump an excuse to accuse China of aggressive trade policies.
The Chinese response to the devaluation of the yuan was rejected on the eve of Chinese officials, which provoked a surge of demand for the risk in the middle of the week. By contrast, the positive were negative on the European-British negotiations in Salzburg: the Brexit plan proposed by Britain, was not adopted by the EU.
The heads of Germany and France strongly rejected British plan. The tone of the negotiations was so cold that German Chancellor Angela Merkel and Prime Minister of Britain Theresa may, as noted by some media, never shook hands. In Britain, the political crisis, the media has learned that Mei is preparing for the resignation of the Cabinet. Who is now in opposition the labour party are going to insist on a second referendum on Brexit, and, according to polls, they have a good chance of winning it. All this creates a very uncertain situation for the British currency in the long term.
Everything is possible: from a failure in the case that Brexit will go for the “hard” scenario without any of the agreements, to a second referendum in which the citizens vote for keeping Britain in the EU, and it is unclear how it will react to the EU, if it happens. Yet what is clear is that the volatility of the British pound and British financial market will rise, and this has a negative impact on the British currency. On Friday GBP/USD lost all of its impressive week-long growth, which fueled hopes for a positive outcome of the negotiations. EUR/USD also suffered, but significantly less.
For the week the dollar index hold above the support of 93.35, which previously started in the spring and summer, on Friday after Bouncing off it. We expect further short-term rebound in the medium-term bearish trend, the potential of which is still not settled, mainly because of the availability of bullish potential in EUR/USD. The recovery of the GBP/USDтеперь a big question.
According CFTCдлинные position in the dollar was restored, the speculators believe that the bullish trend will recover in the medium term, however, the overhang of long positions will continue to interfere with the growth of the American currency. We still tend to believe that the dollar needed a deeper correction to recover the bullish trend. On the other hand, the flight from risk could support the dollar against the Japanese currency, which is chronically oversold the dollar. The mainstream believes that USD/JPY under pressure differential of returns ready to resume growth, but this may prevent both the current positioning and cooling demand.
In summary, the current situation, we think, is best expressed by selling GBP/JPY any attempt to recover the cross.

The ruble

USD/RUBвторую week aggressive reduced, supported the latest decision of the Bank of Russia, as well as the fact that the Bank of Russia lips, Ksenia yudayeva reiterated the firmness in the execution of the decisions, rejecting the idea of the Ministry of Finance that if the ruble will continue to strengthen, the Bank of Russia may return to the intervention against the ruble. The bad news is that between the Bank of Russia and the government, apparently, do have serious differences, as the evaluation of current risks and in the assessment of macroeconomic prospects. The good news is that the Bank of Russia is independent and consistent in their actions.
Our expectations regarding the ruble yet justified to the full. We expect a decrease in USD/RUB to 67 last week, and further to 65.5. The first goal was met, and we expect that the second will be executed after a minor retracement.

The stock market

S&P-500, earlier ottolknuvshis from the February highs, went into growth. The fundamental reason for the growth was weaker than expected, the response of China in the trade war and guarantee the stability of the yuan. The VIX decreases, which indicates the stability of motion. We believe that the support took shape, and you can start cautious participation in this growth, which is closer to the end of the year to go to the traditional Christmas rally. However, background signals in the debt market while giving the reins to appreciate the risks of correction in the medium term.
The RTS index aggressive rebounding against the background of strengthening of the ruble, the positive dynamics demonstrated shares of the flagship of the Russian market – Sberbank. Interestingly, Sberbank is growing at the same time Gazprom is usually that good to move up both of these “heavy” the paper is not enough liquidity. Such dynamics suggests that the market came back big money. Targets in area 1115 at RTS taken with ease. Believe that nine days of growth without a correction is too aggressive, and RTS, like USD/RUB a few will be corrected.
The correction will give the opportunity to enter a long position based on the continued recovery of RTAS in the area of 1175, maybe even 1200. However, one should not discount the prospect of tougher sanctions. Now the market has somewhat distracted from the topic, but closer to November, it will once again return as the main leitmotif of the risk assessment for the Russian market. The potential recovery of the RTS and the ruble is what appears to be very limited.
Dmitry Golubovsky
FG “Kalita-Finance”