Today’s Key Market Drivers: 24th October 2018
“US markets on the left and Asian markets on the right.”
How would I describe financial markets in one word? Fragile. US stock markets have their toes over the edge of a very steep drop off and each day they are inching closer and closer to tipping over the edge. In fact, they were over the edge and gone when Wall Street opened for business Tuesday with the Dow Jones down over 500 points at the market open. It managed to claw its way back higher and recovered as the trading day progressed closing down around 100 points. Asian markets have not crept to the edge and jumped, they ran and jumped yesterday with the major Asian indexes falling between 2% and 3% across the board and now into correction territory with the Nikkei in Tokyo well below its 200 EMA that I have been referencing.
Traditionally when US stock indexes fall sharply so does the Aussie and Kiwi Dollars but what is holding them up at the moment is the US 10 Year Treasury Yield. Every time the 10 Year Yield drifts back lower so does the US Dollar and that supports the AUD v USD and NZD v USD. But the 10 Year Yield going lower I don’t think will save the AUD and NZD against the greenback if we see accelerated selling pressure on US stock markets. US stock markets are fragile but the buyers haven’t given up their fight and are doing whatever they can to hold on. Personally, I don’t think they will be able to hold on and will give up that fight in coming days and weeks and a substantial move lower is imminent in my view. The FTSE in London closed down 1.25% and the DAX in Germany was down 2.17%.
From a price action perspective, currency values were up and down like a yo-yo Tuesday and across the board are back to roughly where they were this time yesterday. I suspect the rally on the Pound was due to Mark Carney’s comments when he spoke at 2.20am AEST. Whatever he said did not have any sustained impact on the Pound as it is now moving back lower against all its major rivals as I write today’s report. Theresa May is under mounting pressure to get a deal done over Brexit and the sell-off on the Pound in the last few hours is due to reports Theresa May is under mounting pressure and a challenge to her leadership may be getting some real traction. If that was the case it would cause political uncertainty for the UK and the Pound would be sold off.
At 1.00am AEST Thursday morning the Bank of Canada will issue its October policy statement with traders expecting a rate hike of 0.25% from 1.5% to 1.75%. The rate hike has already been priced into the Canadian Dollar but the devil will be in the detail of the statement and any mention of further interest rate adjustments will see traders buy or sell the Caddie. If you are currently in a Caddie trade then you need to be very mindful of the BOC’s statement as you can expect increased volatility on the Canadian Dollar in the moments leading up to and after its release.
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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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