Today’s Key Market Drivers: 31st January 2019

US Fed says it will take a patient approach to rate hikes in 2019.

As expected the US Fed kept its official cash rate on hold when it released its January statement early this morning. US Fed Chairman Jerome Powell said. “The Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate.” The market took this as a sign the Fed will at least leave rates on hold for the first half of 2019 and traders piled back into stocks and the US Dollar was sold.

Interest rate expectation is what drives currencies and the US Dollar was sold simply because traders are anticipating they won’t get a higher return on their money with rates staying steady at 2.5%. US interest rates have been rising for the past 3 years along with US bond yields and the US Dollar has been rising along with them. That trend is now starting to reverse as traders are focusing on other Central Banks that will likely lift rates in 2019 which include the Bank of Canada and Bank of England.

The Euro, Pound, Kiwi, Canadian and Aussie Dollars were all sharply higher against the greenback post the Fed statement and if traders continue to buy back into stocks and a “risk on” sentiment prevails then it is likely the US Dollar will continue to weaken.

Aussie Inflation data meets market estimates.

Official 2018 4th quarter inflation figures showed that CPI in Australia grew at 1.8% Year on Year which is nowhere near high enough for the Reserve Bank to raise interest rates. The RBA would need to see inflation rise between 2% and 3%, closer to 2 than 3 before it raises rates and this won’t likely happen until we see an uptick in wages growth which has been depressed since the GFC.
The Aussie Dollar was higher post the inflation reading yesterday and this was because the reading of 1.8% was slightly higher than economists’ expectations of 1.7%.

Plenty of high impacting data coming Thursday and Friday.

Financial markets will continue to remain busy today and Friday with a slew of high impacting economic data which includes China’s January Manufacturing figures this morning, German unemployment data, Euro Zone CPI and GDP, Canadian GDP and US manufacturing and jobs figures for January.

The Fed statement has been the one piece of data the market wanted to hear and I will be keen to see if the buying activity that occurred on global stock indexes immediately post the Fed statement continues for the balance of the week.

January has not been wasted energy.

I have been trading currency markets long enough to know that I am not going to make money every month. January saw me finish in the red after a solid finish to 2018. Not the ideal start to a new year however trading and investing is a long-term game and if you find yourself desperately wanting to see profit in your account every week and every month then we need to change that expectation because financial markets just don’t work that way. You will have good months and you will have not so good months and the simple challenge is to ensure when you win you win more than you lose on average. Successful trading is about executing an edge, a game of probabilities played out over a series of trades with appropriate risk management. It is not about how many times you are right or how many times you are wrong.

It’s about how much you make when you are right and how little you lose when you are wrong. Just because I drew down my account in January does not mean I need to change my strategies for the balance of the year. What’s important for February is that I continue to execute correctly and manage my volume appropriately which is one of the biggest weaknesses for many traders. In February’s Master Class series, I am going to spend additional time with members on the importance of volume sizing your trades correctly and not allowing a single trade or a series of trades draw your account down unacceptable levels.

The mind always fails first, not the body. AB

 

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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