Today’s Key Market Drivers: 17th June 2019
US Dollar rallies after stronger than expected Retail Sales.
Friday saw the US Dollar rally strongly after May Retail Sales data showed US consumers had not slowed their pace of purchases. May’s Retail Sales number showed growth of 0.5% vs the 0.4% the market expected. The fact that Retail Sales had improved was the catalyst for the move higher on the US Dollar as traders in the short term at least took advantage of the good news and bought up the US Dollar. What gave them increased reason to buy back into the Greenback was the revised April Retail Sales number which was higher than first reported a month ago.
As I outline below any move on currency markets on any base currency could be completely reversed on Wednesday when the Fed’s statement is released.
Aussie Dollar falls to new lows but a rebound could be imminent.
The Australian Dollar continued to slide lower in the latter half of last week as traders continued to view the economic backdrop in Australia to be weak and likely getting weaker. Leading economists are expecting the RBA to have the official cash rate at just 0.5% by the end of 2020 and another rate cut is likely in August or September. It is important to note that future rate cuts at the RBA have been fully priced into the Aussie Dollar and therefore what I believe the market will trade off is US Fed expectations which are not as clear.
The market knows what is likely coming from the RBA however any potential rate cuts from the US Fed at this stage are merely speculation rather than officially confirmed by the US Central Bank. That will likely all change on Wednesday (Thursday morning 4.00am) AEST.
US Fed meeting the likely key to any reversal or impulsive moves.
Wednesday will see the release of the US Federal Reserve’s June policy statement where it is widely tipped the Fed will keep interest rates on hold but tweak the wording in their statement to be more dovish and give forward guidance that a rate cut is imminent. Futures markets have priced in an 87% chance the US Fed drops rates in July and this is why the stock market has rallied strongly in recent weeks.
Currency trading is a game of cat and mouse and this week will be fascinating to see how traders react to Fed Chairman Powell’s comments. If the Fed gives a clear signal to the market that a rate cut is likely in coming months historical price action shows the US Dollar would weaken and base currencies such as the AUD and NZD would bounce back higher which is directly in line with what the charts are suggesting will likely happen.
Portugal will be the centre of attention for the Euro this week.
Whilst there is no official policy statement for the ECB this week European Central Bankers including Mario Draghi and Mark Carney will be making speeches and comments throughout and ECB summit in Sintra, Portugal. It was widely expected the ECB when it released its June statement would hint at further stimulus measures but that was not forthcoming in the statement. The ECB summit in Portugal runs from Tuesday thru to Thursday and traders will be closely listening to each and every policy speech given for any forward guidance on interest rates and monetary policy in general. I would expect the Euro to remain volatile this week.
I will be keen to hear any comments from European policymakers on their opinions on the Trump tariffs and how they perceive them impacting global growth and future policy decisions.
The market will frustrate you but you must remain resilient.
I have traded for close to 20 years now and have come to expect and respect the market will only do what I want it to do about half the time. There are consecutive months where the market will do what I want it to do but there are also times it can test your resilience and this is where the trader with little or no consistency in their approach draws down the most money.
Every trading strategy will work better or worse in certain market conditions. Take the last 6 weeks as an example. Volatility has picked up in the FX market and my personal strategy has not been as consistent in its return on investment that it has been through February to Mid-May. I did not have a losing position from January 31st to Mid-May and recently I have had two losing positions, one of them poorly managed by me and the second which simply didn’t pan out. That’s trading, and what must be consistently applied is a consistent approach through the good times and bad times.
When the market switches up its volatility every trading system, not just mine will alter in its performance level and professional traders know this. The novice or newbie trader will see this as the time they need to alter their plan, so they move to another system, try to guess where the market is going next and just chase their tail and money down the drain.
I know I am going to have periods throughout the year I will draw down on my account, just like any successful business knows the seasons of their industry mean there are periods where profitability is not as good and they accept and respect this.
So, it begs the question of how do you know when the market volatility will return to provide a period of consistent results? You don’t and that is why it is so important to continue to trade with a highly disciplined approach to your risk management and you take every trade that meets your plan.
A university degree is just a piece of paper. Your education is seen in your daily behaviour.
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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