Today’s Key Market Drivers: 24th July 2019
Traders sell off the Euro in expectation of more stimulus.
Financial markets continued to sell down the Euro before the ECB’s two-day meeting this week which will culminate with a statement and press conference from European Central Bank President Mario Draghi. The market is expecting Draghi will announce plans for a new stimulus program and therefore a continued sell-off on the Euro will be dependent on how large the stimulus program is.
Yes, the Euro will likely weaken on the announcement of new stimulus measures but traders inside Investment Banks and Hedge Funds may also rally the Euro if the stimulus program announced is not as deep as many expect.
Being short on the Euro is an overcrowded trade right now and large traders know this. What often occurs is a short squeeze back higher which is a short sharp rally in price that usually scares anyone who has joined the short Euro crowd. They exit their positions quickly and along with the buying activity price rallies. Keep an eye out for a short squeeze on Thursday evening if the ECB fails to deliver talk or action on a stimulus program.
Pound steady as Boris Johnson wins the ballot to be the next UK PM.
Theresa May will visit the Queen for the very last time as UK Prime Minister today after Boris Johnson won the leadership ballot to become the next British PM. The Pound was steady on the news as the market had already priced in the fact that Johnson would beat Hunt in the Conservative Party ballot.
The market is now eager to see what Boris Johnson’s does with respect to Brexit and how will he negotiate with the European Union in the coming weeks. If the UK crashes out of the EU in October without a deal the Bank of England will surely be forced to put the official cash rate down to 0% as the economic instability will destabilise the economy and potentially slash 2% from GDP.
Expect the Pound to remain volatile throughout the coming weeks and I think there is a higher likelihood of it going lower rather than higher.
US company earnings continue to beat low expectations.
This time last week the market was digesting better than expected earnings, however, in the fine print of the company reports read concerns about future profits in the latter half of this year. That’s the reason why stocks were lower last week but a week is a long time in financial markets and this week some of the biggest US companies have delivered far better than expected results.
This has meant the fear factor that was in the market last week about the second half of 2019 has gone in the short term and traders don’t appear worried about future quarterly profits. Traders expect interest rates to be low or lower and this will continue to support stocks until such time company earnings are hit with a slowdown in US and global growth.
I believe the final quarter of 2019 will be when stocks have the potential to take a steep dive which will be on the back of weakening US company earnings.
Expectation feeds frustration. Just relax and do your best.
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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