Today’s Key Market Drivers: 20th September 2019
US Dollar falls 24 hours before Fed rate decision.
This time last week only 5% of traders expected the US Fed to leave interest rates unchanged but that percentage has now grown to around 35%. I am amongst the 35% that believe the Fed will leave their interest rate unchanged, however, I do expect them to drop it, if not in September then in October or November.
I don’t believe the market has fully priced in a rate cut from the US Fed and tomorrow’s decision will be the deciding factor when it comes to the short to medium term direction of all currencies that trade against the US Dollar.
75% of traders are expecting a rate cut this week and 80% of traders are expecting another cut before Xmas. If that was the case the US Dollar vs the AUD, NZD, EUR and GBP could be markedly lower in coming months. What will also be released alongside the statement is what is called the dot plot which is a survey that will show the general consensus among committee members on how many adjustments, up or down the Fed will have in coming months.
RBA monthly minutes point towards more rate cuts.
Whilst the Aussie Dollar rallied through the US and European trading sessions on Tuesday the RBA monthly minutes released at 11.30am gave traders a reason to sell down the local currency by 35 ticks. It was the last paragraph that gave the forward guidance traders were looking for.
It said. “Members would assess developments in both the international and domestic economies, including labour market conditions, and would ease monetary policy further if needed to support sustainable growth in the economy and the achievement of the inflation target over time.”
Geopolitical tensions are still high and so is oil.
Sure, oil prices fell on Tuesday but they are still sharply higher than their closing price from Friday with geopolitical tensions between the Saudi’s, USA and Iran extremely high. So far there has been no retaliatory strike, but I expect one and when it occurs oil prices will once again likely rise along with safe-haven currencies. It is inconceivable that Saudi Arabia will not strike back at who it believes is responsible. I suspect they know exactly who did it and are carefully planning their response.
If strike back occurs the Yen and Swiss Franc will likely rally and currencies such as the AUD and NZD will likely fall.
Keeping things in perspective.
I am a big believer in keeping things in perspective and keeping them simple. Don’t get bogged down in all the financial entertainment news, focus your attention on the big-ticket items when it comes to the fundamentals that drive markets.
- Traders are optimistic trade negotiations between the USA and China reached a low point and new discussions due to begin in early October could see a trade deal of some sort in coming months. This would help spur stocks to new highs and also help the AUD and NZD remain supported given their strong reliance on China.
- The Fed is likely to point towards an interest rate cut or cut rates once or twice before Xmas. That will likely keep downward pressure on the US Dollar and upward pressure on stocks.
- The current geopolitical tensions are a factor in markets in the short term however they won’t be a factor in the longer term as traders inside investment banks and hedge funds will focus on monetary policy rather than middle eastern threats. If things escalate in the middle east that focus may change but for now, they will focus on Central Bank policy and China / US relations as bigger driving forces long term.
In other news.
I often get asked by members what do I read and what economic calendar do I view. Following are two articles that I have read in the past 24 hours and also a link to the economic calendar that I view each morning before I look at any charts.
Click here for some great commentary from some of the largest investment banks with respect their expectation of Fed rate cuts.
JP Morgan is still calling the stock market higher saying a once in a decade trading opportunity exists. Click here to learn more.
This is a link to the economic calendar that tells me what low, medium and high impacting economic data is going to be released today and this week and what leading economists expectations are. It is a huge part of my analysis for my stock and fx trading and I would frankly be lost without it. I consider it more important than watching a set of charts.
I produced a video series a couple of months back on how to read an economic calendar. If you have not watched the two videos here is the link to the first video.
Trying is not enough. If you truly want success you must do it with all your heart.
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).
If you would like to speak to one of our Senior Client Advisors regarding the relative client opportunities offered at LTG GoldRock and how you can follow along with our Professional traders each day in our live trading room please contact us today or you can register for one of our a live coaching and trading webinars by clicking here.