Today’s Key Market Drivers: 21st September 2018

“Emerging market currencies are back in favour.”

The selling pressure on the safe-haven currencies continued on Thursday as global stock indexes posted another day of solid gains and traders turned a blind eye to any trade tensions between the US and China. The US Dollar continues to weaken and the reason is two-fold.

  1. The fretting about emerging market economies being negatively impacted by the US v China trade war was overexaggerated and the rush to sell them down is now reversing.
  2. Traders are pricing in their expectation the US Fed will announce that it will need to slow the pace at which it raises interest rates and it remains mindful of the trade tariffs and how they may impact US economic growth in 2019.

Like I said in my video update yesterday there is simply no “new news” that’s going to drive the US Dollar to new highs at present. The market already has 100% priced in interest rate increases, the market knows the US economy is going gangbusters and for the US Dollar to rally strongly we are going to have to see an unforeseen geopolitical or surprise event that sees traders want to buy safe-haven currencies. Markets are bullish, stock indexes are again hitting new highs and this is a recipe for safe haven currencies such as the Yen, Swiss Franc and US Dollar to be sold.

UK Retail Sales far exceeded the market’s estimates and helped push the Pound to a new high after recently rallying off a low that was six months in the making. We still need to hear that the UK has done a Brexit trade deal but I believe that will happen in coming weeks and the recent rally higher on the Pound will continue through until Xmas under the current fundamental conditions. The only reason why the Pound would fall on its sword again would be if the UK cannot reach a trade deal with the EU. Interest rates in the UK are going up and the economy is clearly on the improve and traders have not yet fully priced in higher interest rates at the BOE. The Swiss National Bank as expected held its benchmark interest rate steady at -0.75% on Thursday. Yes, you read it right, put your money at the Swiss National Bank and you won’t earn any interest, you will be charged 0.75% for the privilege.

Friday sees Japanese and Canadian CPI (inflation) data released which neither is likely to get the market’s attention. Unless we get a surprise of some kind today I expect financial markets to finish the week positively with the current themes and trends in tack. I would be surprised to see the same type of rally on the NZD, EUR, and Pound as we saw on Thursday but I do expect the upward buying pressure to remain and the downward pressure to remain on the US Dollar. Expect the unexpected!

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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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