Today’s Key Market Drivers: 28th June 2019
US GDP misses estimates as Trump arrives in Japan.
Wednesday’s US GDP figures missed estimates with annualised GDP coming in at 3.1% annualised vs the 3.2% leading economists expected. It wasn’t all bad news as the quarterly number came in a tick above estimates and Personal Consumption Expenditure exceeded estimates at 1.2% vs the 1% expected. That data had no major impact on the US Dollar which remains under pressure as Donald Trump arrived in Japan for the G20 summit.
Traders are eager to hear from the US President following his sideline meeting with Chinese President Xi. It is widely expected the two leaders will announce that positive progress is once again being made and traders have been pricing in this expectation by supporting stocks and buying base currencies that trade against the Yen and Swiss Franc.
The market is certainly overbought on optimism.
The stock market and base currencies that trade against the safe havens have been bought higher this week purely on the optimism that trade talks between the US and China will reap a positive outcome. If Trump or Xi are downbeat in any way about the trade talks you can expect to see the market react swiftly with stocks falling sharply and the safe havens rallying once again.
It was not that long ago that the US and North Korea President met in Vietnam with the market very optimistic that the talks would conclude positively. Both leaders left the talks abruptly surprising markets and sending stocks sharply lower and safe havens sharply higher.
I have been trading long enough to always expect the unexpected and to never fall in love with a position or potential outcome.
Pound remains on the back foot as traders await the announcement of the next UK Prime Minister.
The Pound has lagged behind the other major base currencies that trade against the US Dollar simply because of the political uncertainty that still hangs over the UK. Brexit negotiations are going nowhere whilst we wait to hear who will be the next PM with Boris Johnson still the front runner to win the leadership battle. The market was recently concerned that Johnson could potentially allow the UK to crash out of the EU without a deal and his approach may be far more hard-lined than Theresa May.
Any clarity on who will be the next UK PM is likely going to be met with buying activity on the Pound.
Canadian GDP may surprise to the upside today.
The market is expecting the Canadian economy to have grown annually by 1.5% when the data is released at 10.30pm AEST. Recent economic data out of Canada has suggested the economy is ticking along reasonably well and there is a good chance the GDP figures beat economists’ estimates today.
The USD v CAD has been weakening over the past week from the expectation of lower interest rates in the USA and if today’s GDP figure for Canada is positive then the USD v CAD will likely see new lows with another impulsive move to the downside.
Euro continues to be supported as German monthly CPI beat estimates.
Inflation is the largest of all economic data barometers and Thursday showed June’s German inflation figure picked up more than economists expected. The Euro has been benefiting from a weaker US Dollar and any positive economic data is only going to see more buying activity in the short to medium term. Today sees Euro Area CPI which covers the 27 countries that are considered in the Euro Area and if this also beats estimates continued momentum higher on the EUR v USD can be expected.
Longer term I do expect the ECB will announce a stimulus proposal and this is likely going to keep investment banks and hedge funds from over-leveraging into long Euro positions. Draghi announced in Portugal less than 10 days ago that the ECB would inject stimulus if the committee believed the Euro Area needed it and traders took this as a sign of forward guidance on what the Central Bank is likely to do in coming quarters.
Keep an eye on the Euro at 7.00pm AEST
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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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