Today’s Key Market Drivers – 1st September 2017

Thursday signaled the end of August and end of month currency flows can often create increased volatility as trader’s square or add to positions before a new month begins. The US Dollar slipped after consumer spending data for the month of July failed to meet expectations of 0.4% coming in at 0.3%. Why traders were disappointed was because the consumer spending number was the lowest since December 2015 and consumer spending will impact inflation over time and the US Fed is demanding inflation rises before it lifts the official cash rate again with some traders now suggesting the US Fed may not lift rates at all in 2018. The Euro has now gained for six straight months whilst the US Dollar has fallen in value against its major rivals over the same six months.

Today sees the release of the August official US jobs report which always creates increased volatility on currency and stock index markets. Economists expect the US economy to have added 180,000 jobs in August, however, Wednesday’s unofficial report suggested the US economy added 235,000 jobs in August. History will tell us the ADP report released 2 days prior is a very unreliable guide as to what the official jobs report will say. If the US economy added more than 200,000 jobs in the month of August and there were no downward revisions to previous months then the US Dollar will likely gain strength leading into the weekend. A weaker than expected jobs report will likely see the US Dollar sold.

When I met a former UBS trader in London in March this year he told me what to watch for at the end of each month when it comes to currency movements on final trading days. Whilst I was doing my research for this report this morning an article on CNBC reminded me of what he had told me. What the CNBC article said today is exactly what Graham told me in London in March. “Month-end investment flows also weakened the dollar, said Richard Franulovich, senior currency strategist at Westpac Banking in New York. He said the underperformance of European equities compared to U.S. equities in August likely led to investment losses for certain investors, leading them to compensate by buying more European stocks and euros to meet minimum exposure requirements.” If you look at the value of the Euro on Thursday you will see it rallied against the US Dollar.

The market often will tread lightly in the hours leading up to the US Non-Farm Payrolls data release. We do have some important China manufacturing data being released at 11.45am AEST and if the trend continues the Caixin report today will likely beat the market’s estimates and support the AUD. North Korea’s missile launch earlier this week seems like a distant memory now with markets shaking off the threat of war and focusing back on the core economic drivers. I have never in my 18 years of trading seen a geopolitical event grip markets for more than 24 hours. Central Banks drive global financial markets along with economic data.

 

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 key-note 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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