Crazy week behind but it's too early to relax

16 thg 3, 2020

Last week showed as clearly as possible how bad things are now: the crisis is not just a word, but a reflection of sad reality. The Fear Index has reached highs unseen since 2008. Once again: so high it rose only at the peak (!) of the global financial crisis 2007-2009. Is this not the best illustration of how bad everything is?

Italy went into complete lockdown, and other countries followed it, albeit in a milder form. For the Italian economy, this is, if not the end, then a very strong blow. This is the third largest economy in the Eurozone by the way.

Today China has already confirmed alarming fears - the economy suffered a severe blow: industrial production in February fell by 13.5%, and retail sales by 20.5%. As the result everyone suddenly remembered about the safe haven assets again.

So there is nothing surprising in the fact that the ECB has expanded the program of quantitative easing, and the German government promises emergency economic assistance ( more than $500 billion). To understand how much is it lets compare with GDP: this is about 15% of the country's GDP. Measures of this magnitude were not even during the crisis of 2007-09.

The Bank of England at an extraordinary meeting lowered the rate. The Fed expects rate cuts to almost 0% this week.

In general, we are now in the midst of a crisis. And it is not the fact that the worst is over. A pandemic is developing exponentially. Each new day of the epidemic increases the amount of economic impact.

So the upcoming week could be another test. Moreover, on Wednesday the Fed will announce its decision on the parameters of monetary policy. On Thursday, the Bank of Japan will say its word. In addition, there will be quite a lot of macroeconomic statistics.

How to trade in such conditions? For beginners, we would recommend just watching from the side. Otherwise, everything can end extremely sad. For those who are ready to compete with the markets, we recommend expanding the boundaries of the concept of “impossible” as far as possible in terms of the size of daily price fluctuations. Given how dynamic everything is, you can try to trade based on the signals of oscillators - intraday prices constantly rebound by more than serious values.

As for the general directions, given how bad everything is now in Italy and Europe as a whole, we will sell the euro. Moreover, this week we will not do this in pair with the dollar, which itself may be under attack if the Fed takes extraordinary measures, but against the yen and the pound, that is, we will sell EURJPY and EURGBP pairs.

Intraday you can sell oil, but at the same time, we note that in the medium term we have already bought oil (WTI) at $ 30. This is part of a big “buy” plan that involves adding at $ 25 and $ 20 to a super-position.

In addition, this week we will buy gold. It generates great entry points and it’s a sin not to use them. The only thing for positions in gold is the tactics of multiple trades based on small stops. That is, we put small stop-losses on long positions, if they are executed, we wait for a while and restore buy when the movement calms down. Standing against the gold market in the current conditions may be suicidal, but jumps after stops will allow you to control what is happening. And the overall prospects of the position will ultimately allow to beat off all the stops and be in the plus after all.