Today’s Key Market Drivers: 2nd August 2018
“The US Fed has upgraded its outlook on the economy from solid to strong.”
As expected the US Federal Reserve kept the official cash rate on hold on Wednesday and upgraded its assessment of the US economy from solid to strong. The Fed also said;
“The Committee expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labour market conditions, and inflation near the Committee’s symmetric 2 per cent objective over the medium term. Risks to the economic outlook appear roughly balanced.”
What the Fed is saying is that it expects the US economy to remain strong and the market should expect two more rate increases this year as indicated in previous statements. As a result, the US Dollar was broadly supported through the US trading session on Wednesday with the 10 Year US Treasury Yield once again threatening to break above the 3% level. I have noted a number of times that once the US 10 Year Treasury Yield (bond) goes over 3% this will likely be a negative for stocks and will see the Yen rally and Aussie and Kiwi Dollars take another leg lower. European stock indexes were sharply lower and the Dow Jones also fell 81 points.
The Aussie and Kiwi Dollars have slipped back lower with Oil falling 1.6% and a broad sell-off on commodity markets helped keep downward pressure on the local currency. The Chinese currency also fell as traders remain concerned that US-China trade relations will continue to deteriorate as the US plans more tariffs on China imports. Recently any ratcheting up of trade tensions has been US Dollar positive. Today at 11.30am the latest Australian Trade Balance data is set for release and anything out of line with expectations could shift the AUD by as much as 25 to 50 ticks post the news.
The Bank of England will take centre stage today and release its long-awaited August statement which traders are expecting will show a rise in the official cash rate from 0.5% to 0.75%, the first in 10 years. The rate increase has been fully priced into the Pound so what will drive the currency post the statement is comments from the BOE on when and if it plans to raise rates again in 2018 or early 2019. If they suggest they will raise them sooner than the market expects then the Pound will be bought higher and the opposite if they are downbeat on when the next rate hike will be.
There are no new price rejection trades confirming this morning and the head and shoulders short position I mentioned yesterday on the GBP v USD has not yet confirmed. We are getting closer and closer to a break out on currency markets and I expect this to happen before the end of August. Volumes across financial markets are notoriously lower through the US summer months and with US schools soon to get back to class I expect volumes to once again pick up and the trends we like to see resume.
I expect the Asian trading session to be a negative one today and with such a broad sell-off on commodity markets, the downward pressure on emerging market currencies will likely remain. The current theme on currency markets is US Dollar positive and the Pound will certainly be a market mover today.
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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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