The week results: the epidemic & the Friday bloodbath
The past week has so far been considered the most eventful of the last few months. And the point is not even in the number of new events that took place, but in the price dynamics in the financial markets. One of the strongest drops in the US stock market in history (during the week Nasdaq lost up to 15% of its capitalization), the Fear Index grew almost three times, the oil decreased by almost 20%.
The culmination was a natural "blood bath", which was arranged by traders in the financial markets on Friday, when, for example, gold was reduced by $80 during the day.
How did markets get to such a life? We wrote about this quite actively for more than six months and now we are faced with the results of those temporary bombs that were planted.
Epidemic coronavirus is still able to be a "black swan", which freed all the energy that accumulated markets. More precisely, not all, because it is still only in the process of development.
The main event of the past week - the coronavirus epidemic ceased to be a local problem in China and became a global disaster (the number of newly diagnosed cases outside China steadily exceeded the number of cases in China). It was after this that investors became completely scared.
And if the week began with the fact that the problems were in South Korea, Japan, Italy, and Iran, then it ended with a radical expansion of the list. Now it has the USA, France, Germany, Spain, Great Britain, Singapore, Malaysia, Kuwait, Bahrain, and many others. The total number of cases in the world over the week has grown significantly and has already exceeded 7,000.
Naturally, now no one has any doubts that the world economy will suffer and will suffer very much. Out of habit, everyone turned their eyes to the Central Banks, which have recently been playing the role of traditional savers of the economy.
Fed Chairman Powell said at the end of last week that the US Central Bank is ready to act. Accordingly, the markets instantly rebuilt their expectations and now assess the probability of a rate cut in March at 100%. Typically, 95% of traders expect a decline of 0.5%. So the problems of the dollar on Thursday and Friday are generally understandable. One side. On the other hand, other central banks, in particular the ECB, may also lower rates.
Thus, we continue to consider the growth of the EURUSD pair abnormal and this week will be very active in selling the euro against the US dollar. Not forgetting, of course, about the feet.
In general, in the current conditions, when the most terrible volatility has increased many times, a trader can do it - work without stops and try to impose his will on the market. So we’ll definitely put the stops - it’s better to re-enter the position when the dust settles, rather than stand against the market and lose the deposit in one day, essentially out of the blue.
What else do we plan to do this week? Definitely buy gold and at the same time buy a pair of USDJPY. It’s a kind of under-hedge on safe-haven assets that did absolutely nothing on Friday, but we believe that the markets will return to some semblance of rationality and this hedge will work.
This week, we are inclined to start buying oil, because a) the achievement of the $ 44 mark for the WTI brand corresponds to our goals, which we announced when it was still in the region of $ 60; b) OPEC is seriously concerned about what is happening, and this week there will be a meeting within the framework of which amendments may be made to the OPEC+ agreement - they announce an additional reduction in oil production by 1 million BPD. It is very serious. But again, these purchases are a rather risky attempt to catch a U-turn, which is not yet available. So we advise fans to take risks, do not forget about the stops, and we recommend that conservative traders put the oil trade on hold or at least wait until the end of the week and OPEC's decision.
The culmination was a natural "blood bath", which was arranged by traders in the financial markets on Friday, when, for example, gold was reduced by $80 during the day.
How did markets get to such a life? We wrote about this quite actively for more than six months and now we are faced with the results of those temporary bombs that were planted.
Epidemic coronavirus is still able to be a "black swan", which freed all the energy that accumulated markets. More precisely, not all, because it is still only in the process of development.
The main event of the past week - the coronavirus epidemic ceased to be a local problem in China and became a global disaster (the number of newly diagnosed cases outside China steadily exceeded the number of cases in China). It was after this that investors became completely scared.
And if the week began with the fact that the problems were in South Korea, Japan, Italy, and Iran, then it ended with a radical expansion of the list. Now it has the USA, France, Germany, Spain, Great Britain, Singapore, Malaysia, Kuwait, Bahrain, and many others. The total number of cases in the world over the week has grown significantly and has already exceeded 7,000.
Naturally, now no one has any doubts that the world economy will suffer and will suffer very much. Out of habit, everyone turned their eyes to the Central Banks, which have recently been playing the role of traditional savers of the economy.
Fed Chairman Powell said at the end of last week that the US Central Bank is ready to act. Accordingly, the markets instantly rebuilt their expectations and now assess the probability of a rate cut in March at 100%. Typically, 95% of traders expect a decline of 0.5%. So the problems of the dollar on Thursday and Friday are generally understandable. One side. On the other hand, other central banks, in particular the ECB, may also lower rates.
Thus, we continue to consider the growth of the EURUSD pair abnormal and this week will be very active in selling the euro against the US dollar. Not forgetting, of course, about the feet.
In general, in the current conditions, when the most terrible volatility has increased many times, a trader can do it - work without stops and try to impose his will on the market. So we’ll definitely put the stops - it’s better to re-enter the position when the dust settles, rather than stand against the market and lose the deposit in one day, essentially out of the blue.
What else do we plan to do this week? Definitely buy gold and at the same time buy a pair of USDJPY. It’s a kind of under-hedge on safe-haven assets that did absolutely nothing on Friday, but we believe that the markets will return to some semblance of rationality and this hedge will work.
This week, we are inclined to start buying oil, because a) the achievement of the $ 44 mark for the WTI brand corresponds to our goals, which we announced when it was still in the region of $ 60; b) OPEC is seriously concerned about what is happening, and this week there will be a meeting within the framework of which amendments may be made to the OPEC+ agreement - they announce an additional reduction in oil production by 1 million BPD. It is very serious. But again, these purchases are a rather risky attempt to catch a U-turn, which is not yet available. So we advise fans to take risks, do not forget about the stops, and we recommend that conservative traders put the oil trade on hold or at least wait until the end of the week and OPEC's decision.
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