May Delivers the Goods

Today's Highlights

Trump's Mouth on the Markets

May Delivers the Goods

Another wild prediction

Please Note: All data, figures & graphs below are valid as of January 18th. All trading caries risk. Only risk capital you're prepared to lose.

 

Market Overview

The markets are still rattling after statements from Theresa May, Xi Jinping, and Donald Trump. The momentum will continue today by a very full economic calendar. 

Stock indices in Europe and the US saw modest declines. Asia, on the other hand, is doing fine this morning with gains in the China50 and Jpn225.

Donald Trump commented to the Wall Street Journal saying that the USDOLLAR was too strong and that that's not good for business. Trump wants to increase American Manufacturing, so a strong Dollar would only hurt exports.

US Presidents rarely intervene directly in the currency markets but this is certainly the first time in history that a President-elect talked down the Dollar. His remarks caused the global traders who were extremely bullish on the buck to quickly re-evaluate their positions. 

If he does indeed succeed in his goals to re-inflate the economy, it will cause the Dollar to rise, but as with many things Trump, his mouth has a way of causing waves both in the media and in the markets. We're certainly in for more volatility, which at the end of the day is good for our traders.

 

That was a BIG speech

Prime Minister May's big speech was indeed one of 2017's highlights so far. It really had everything for everyone. She presented a strong United Kingdom as the center of global commerce and placed the country in an excellent position for the tough negotiations ahead.

The British Pound, which was expected to crash during the speech rallied strongly. The gap from the weekend (white circle) had been covered even before May took the stage. As she spoke, the UK gained hope and confidence and brought the GBPUSD all the way up to 1.24 by the evening.

Indeed, Great Britain is a strong nation and are probably better off without having to bow to Brussels, that's why they voted to leave in the first place. May did an excellent job of tapping into that sentiment and was handsomely rewarded by the currency market.

The eToro network has been incredibly bullish on the Pound Sterling for several weeks now and their loyalties have been rewarded as well. Many have taken profits off the table, but the sentiment in the world's largest social investment network is still 60% bullish on the cable.

 

Out of control Inflation

Less watched but no less important were the inflation numbers from the UK. The year on year CPI was expected to rise by 1.4% but instead rose by 1.6%. I know 0.2% doesn't seem like much but this does in fact show that inflation in the UK is rising faster than expected, and it was already expected to be out of control.

As we discussed in yesterday's update, the main tool that the BoE has to offset inflation is raising rates, which is the reason for my wild prediction statement in today's opening letter above.

 

One more wild prediction

As the volatility on stock markets flattens out, we're seeing an increasing number of bearish bets on our network. Yesterday, @Dimitrios1 explained his short position to our CEO Yoni Assia in a very unique conference call. 

Another one of our star performers @Running-Chris in Germany has also been building up a steady short position on the Ger30. Indeed, shorting the DAX is one of the largest positions by volume in eToro. 

Here we can see the long term chart of the German Index. Since 2012, the year the world was supposed to end, the DAX has been rising steadily. The peak came early in 2015 at 12,394. At the moment we're holding on to 11,500.

At this point, even a small correction down to 10,750 would mean massive profits for our clients.