Currency manipulator & Goldman Sachs forecasts

7 Ağu 2019

After China devalued the Yuan on Monday, markets were awaiting a US response. It appeared quickly enough: The U.S. Treasury Department announced late on Monday that it had determined for the first time since 1994 that China was manipulating its currency, knocking the U.S. dollar. Maybe in response to this, or maybe just to show that the fall of the renminbi on Monday is just a power struggle, the People’s Bank of China took steps to stabilize weakness in the yuan. As a result, its fall has stopped and even strengthened somewhat. Although the Yuan against the dollar remained above 7.

Investors yesterday were able to take a breath. Haven assets after strong growth on Monday, adjusted on Tuesday. Given that the situation remains tense and uncertain, we continue to recommend the Japanese yen and gold purchases.

We also continue to recommend selling the dollar. Against the background of such a development of events, it is more than logical and to expect a further rate cut. Currently, according to the Chicago Mercantile Exchange, 100% of traders expect the Fed rate cut in September. But there is another interesting point. If last week only 1.5% of traders expected a 0.5% decrease, then this week the percentage was already 21.5%, that is, the probability increased sharply - almost 15 times up(!).

Thus, we are talking about the reduction of the rates two times in a row. And the dollar is still extremely expensive. So the opportunity for its sales is unique. It’s even strange why the markets cling to their purchases.

Goldman Sachs Group Inc. recently published their vision of the current situation in the world. Their forecasts are: the Fed will lower the rate in 2019 at least 3 times, a trade war will continue until 2020, and still Trump is the President we should not count on its end.

In general, the vector of development of events has not yet changed. Therefore, our basic trading recommendations are also unchanged.

In addition to selling the dollar and buying safe-haven assets, we continue to sell oil and the Russian ruble. We also hold long positions on the pound and those who do not have them have the opportunity to buy at very attractive prices.