Today’s Key Market Drivers: 26th July 2019
ECB fails to drop rates or inject stimulus. But they will in the future.
The European Central Bank announced on Thursday that it was planning on keeping the current cash rate at “present or lower levels” and also indicated that a new money printing stimulus program was likely. The ECB stopped short of dropping the official cash rate in July with Mario Draghi speaking from both sides of his mouth. Whilst remaining downbeat about the current economic outlook Draghi gave Euro Area citizens a ray of economic hope saying he saw the risk of a Euro Area recession as low.
The upshot from the statement was the ECB kept its official interest rate at 0%, however, indicated that lower rates into the negative in the future are likely along with more stimulus measures to help support the Euro Area economy.
The reaction inside Investment Banks and Hedge Funds were as I expected. The Euro rallied after the statement because traders had been selling off the Euro leading into the statement on the expectation the ECB would pull the trigger on lower rates and stimulus in July. That didn’t happen so the short squeeze back higher I mentioned yesterday occurred. The lesson for those traders getting short just prior to the news is simple. Next time don’t be so late to the party!
US Durable Goods data beats economists’ expectations sending the US Dollar higher.
The US Dollar rallied strongly on Thursday following a far better than expected Durable Goods number and a drop in the number of weekly jobless claims. Sales of goods that are supposed to last more than 3 years (items such as washers, furniture and electronics) rose by 2% which was substantially higher than economists expected and a jump back into the positive after last month’s -2.3% reading.
US GDP figures today could surge the US Dollar even higher.
Friday will see second-quarter US GDP figures released and if this also beats market estimates you will likely see another surge higher on the Greenback pushing the AUD and NZD to lower levels along with all the other base currencies that trade against the US Dollar.
If the data is stronger than expected this will be a message to the US Fed that the economy is not weakening at the rate previously expected and the Fed could hold off on dropping the official cash rate by 0.25% when it meets next week. Traders have fully priced in the expectation the Fed is going to drop the official cash rate next week and if they don’t then you will see a surge in the value of the US Dollar and you will also see a flurry of Tweets from Donald Trump who may even try and sack the Fed Chairman if rates don’t go lower in coming months.
Stocks fell after the latest economic numbers impressed and Draghi didn’t inject stimulus.
US stock markets fell on Thursday thanks to the better than expected Durable Goods number and a less than expected downbeat ECB. Traders have been buying up stocks expecting interest rates at the ECB and US Fed to go lower in coming months. The ECB didn’t drop its official cash rate Thursday and if today’s US second-quarter GDP figures are stronger than expected I would anticipate another sell-off on US stock markets heading into the weekend.
Stock markets have been rallying as traders’ price in their expectation of lower interest rates but if rates don’t go lower, we will see a reversal in the trend on US stock markets which would also reverse the trend in other stock markets globally.
You give energy to what you focus on.
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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