Today’s Key Market Drivers: 14th February 2019

More weak economic data sends the Euro even lower.

Weaker than expected Euro Zone Industrial Production numbers have seen the Euro slide to a low that has “capitulation” warning signs being raised. The Euro v US Dollar is threatening to break to a two-year low and further weakness in economic conditions across Europe could see the Euro fall very sharply in the coming weeks.

At the start of 2019, the Euro was looking good against the US Dollar with traders including myself expecting growth in the Euro Area to do okay, with growth and inflation expected to decline in the USA and with a US Fed dovish in its estimate of future rate hikes. We’ve really seen the opposite occur with weaker than expected Euro Area data and stronger than expected US economic data which has translated into a weak Euro and stronger Dollar.

Today sees the release of German and Euro Zone GDP figures and if they are weaker than the market expects traders are going to sell down the Euro even further and the capitulation I spoke about could happen quickly.

RBNZ statement fires the Kiwi Dollar higher.

The market was expecting the RBNZ to follow the other major Central Banks and acknowledge that global growth will slow and it would lower its growth and inflation outlook.

What the market didn’t expect was a hawkish statement with commentary such as “consumer price inflation is expected to rise to around the mid-point of our target range at 2 percent.” The RBNZ also said. “There are upside and downside risks to this outlook. A more pronounced global downturn could weigh on domestic demand, but inflation could rise faster if firms pass on cost increases to prices to a greater extent.

The Kiwi Dollar rallied more than 1c on the news but half of those gains were erased through the US trading session and the specific reasons why are explained in the next story.

I expect the NZD v USD will ultimately shift lower in coming weeks along with the AUD and any rally on either the NZD v USD or AUD v USD will be viewed as a shorting opportunity once key resistance levels are hit. Fundamentally the US economy is stronger and the prospects are the US will see a rate increase this year.

US Inflation beats the markets estimates.

The US Dollar rallied strongly against all of its major rivals on Wednesday as inflation beat market estimates showing the US is far from falling towards a recessionary environment.

The economy is slowing but it is not slowing at the pace at which many economists expected and therefore traders may have to bring forward their estimates of when the US Fed will next raise rates.

If the current economic data continues to impress and the stock market continues to rise then the US Fed is going to step in and put the brakes on and raise the official cash rate.

In December, it indicated it would like to raise rates twice in 2019 but traders have albeit discounted any rate hike in the first half of 2019 and some are saying they won’t touch rates again for twelve months or more with the next move potentially down.

None of the economic data is suggesting the US Fed can’t raise rates at least once in 2019 and thus the inflation reading on Wednesday sent the US Dollar higher and pushed the NZD v USD back lower.

What’s going to move markets today?

Japanese growth numbers (GDP) are released through the Asian trading session today but are not generally market-moving numbers.

European GDP numbers will be important for the Euro and US Retail Sales will likely back up the fact the US economy is still outperforming most developed economies throughout the world.

The fundamentals of the market will trump the technicals every time. AB

 

About the Author: Andrew Barnett

Andrew is a professional trader and successful investor who has a strong focus on education. He is a regular Sky News Money Channel Guest and one of Australia’s most awarded and respected financial experts and is regularly contacted by the Australian Media for the latest on what is happening with the Australian Dollar. Director at LTG GoldRock, Andrew Barnett, guides thousands of traders around the world in the live market on a daily basis, advising them on buy and sell directions, as well as trading his own personal account. Andrew, a regular keynote speaker at trading and wealth-creation events throughout the Asia Pacific region, is an authorized representative registered with the Australian Securities and Investment Commission (ASIC).

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