Bearing in mind the current situation of the markets, it would be necessary to take positions in line with the three P strategy:
It is still a good moment to take long positions, to buy banks after sell-offs, to buy retail companies and to buy industrials and technologies.
As references, this week we have:
- Oil Price: Risk that inflation goes up with oil prices again as Central Banks act in a very dovish way every time there is a risk. Markets in the short term will be conditioned to this risk.
- Geopolitics: Politics, tariffs and trade deals will condition the markets.
o In the end, this situation will lead to observe if the USA realises that it does not need China as an intermediary for North Korea which will put pressure on the markets in the short term.
o On the other side, it is politics. European politics are making a bigger noise with the uncertainty about the Italian government which is not that big, and the risk of a vote of no confidence in Spain.
o So, bearing this in mind, the immediate influence over the markets is high. Therefore the markets slow down. However, it should not concern us that much as politics have less weight on the economies with time.
Moving to macroeconomics, there are a couple of indicators this week. Most relevant are:
- Wednesday we have American GDP which should remain at 2.3%
- Thursday, we have European inflation that should increase to 1.6%
- Then on Friday, we have American wages which should go to 2.6% – 2.7%
o Ideally 2.6%
The probability that all this happens is low plus New York and London are closed on Monday leading to a slow start. It will be a week of transition, observing all this information and digesting it to know what the reaction of the markets will be. It will be intense in the short term, but as said in the beginning, it is important to persist, have patience and remain where we are.
- Indexes should be the place where we should remain since the expansive economic cycle continues, politics have low influence on economics, and we are in a period where global growth is happening in a positive synchronised way.
US Dollar Index
As expected, the US Dollar Index retested the recent resistance it broke it, confirming the bull trendline. For now, as we got the retest as confirmation, we remain with our bullish position.
After catching the first bearish wave, we are capturing the second one. We were waiting for a retest of the support for confirmation, but we did not even need it as it continued falling without chance of retesting the support. Remain bearish for now unless unexpected circumstances arise.
After breaking the strong monthly support on Friday, it opens space for a short position. We were waiting for a rebound, but instead of that, we got a strong breakout which gives us the confirmation of the strength of the bearish trend. Hence, it would be convenient to change the position into a bearish one with a huge risk-reward. As for now, we leave the profit taking open until the next monthly support.
We will remain on the side this week as USDJPY is in a dead space between supports and resistance. Hence, we do not take any position, remain neutral and await what direction it takes.
We took profits and now it is time to wait on the sides to see what happens. We’ll look closely to see which trendline it gets closer to if it continues the bullish run or breaks any near support. Looking at its reaction, we’ll take another position next week.
Retest confirmation is on its way creating another good time to enter. We remain bullish as there is nothing to be concerned about for now.