Today’s Key Market Drivers: 3rd May 2019
The Bank of England upgrades its UK economic outlook.
Thursday saw the Bank of England keep its benchmark interest rate steady at 0.75%. Governor Carney acknowledged the recent uptick in China, US and European economic growth and even upgraded the BOE’s 2019 UK GDP outlook from 1.2% to 1.5%.
The committee agreed unanimously to keep interest rates steady but he did say in his press conference. “If the world unfolds broadly as consistent with this forecast, then it will require greater withdrawal of monetary stimulus than is currently implied — it just didn’t require it at this meeting.” What does this mean? Higher interest rates sooner.
Carney’s comments surprisingly did not see a flood of money come for the Pound but this may have been because of continued Brexit concerns, a trading day which was overall “risk off” and money was flowing for the safe haven currencies such as the US Dollar, Yen and Swiss Franc as stocks retreated.
Aussie Dollar falls back below 0.70c once again.
The Aussie Dollar as I expected as fallen back below the key phycological level of 0.70c and next Tuesday’s RBA policy statement is likely going to kick it even lower and I expect it to finish next week closer to 0.68c.
The RBA is going to drop rates next week in my view and when they do it will force investment banks and hedge funds to sell more Aussie Dollars and with US economic data continuing to impress the only way is down for the local currency over the long haul. Australia is going to need at least two rate cuts for it to have any material difference to the way Australians spend, borrow and hire so when the RBA does cut next Tuesday the big end of town knows one cut is never enough and the likelihood is, we will get another follow up cut in future months.
Lower interest rates mean a lower currency value and professional traders are pricing in their expectation of what a Central Bank will do months in advance. All rally on the AUD will be viewed as a shorting opportunity.
US stocks continue to decline after Wednesday’s Fed statement.
US stocks continued to retreat on Thursday following Jerome’s Powell’s upbeat comments about the US economy on Wednesday which put pay to any future rate cuts at the US Federal Reserve this year. Traders are starting to buy back into the theory the Fed will need to move rates higher again if the economic data continues to impress and higher interest rates are not good news for stockholders.
The stock market fell sharply in December because the Fed raised the official cash rate to 2.5% and said they would continue to raise it twice in 2019. They changed their tune in February saying they will sit on the sidelines for 2019 but as I have said previously, I expect they will need to change their minds again later this year and the market will have figured this out well before the Fed mentions it. More positive US economic data is only going to force traders to buy more US Bonds and US Dollars and this will rally the US Dollar higher against emerging market currencies and the AUD and NZD.
What’s going to move markets this Friday?
There are two high impacting pieces of economic data due today and they are Euro Zone Inflation and official US jobs numbers. Earlier this week we saw a slew of positive economic numbers for the Euro Area so I expect today’s inflation number for the Euro Area to at least meet the market’s expectations. I don’t believe it’s going to surprise to the upside and give traders a reason to surge the Euro higher but I do think it will be enough to address the recent slide on the Euro late this week. The Euro Area inflation numbers are due at 7.00pm AEST.
At 10.30pm AEST the market will digest the April US jobs figures which are expected to show the US economy added approximately 190,000 jobs in the month of April. If the official number exceeds this or is even close to 190,000, I expect further upward pressure on the US Dollar and downward pressure on US stock indexes as it would be another sign to the Fed the US economy is doing well and a rate increase could be warranted sooner rather than later. Any rally on the Euro after the Euro Area inflation figures could evaporate on the US jobs numbers so be very careful entering positions through the European trading session today.
Don’t you dare start to increase risk!
Closing out my long GBP v JPY trade yesterday marks just over 3 months of winning trades and a 30%+ return on investment for this financial year. I am extremely mindful of what a purple patch can do to a trader’s mindset and in particular those of you who only take my trades.
Many of the copy AB traders (is this you?) think that just because I have had a long winning streak now it gives them the right to increase their trading account size and begin to increase risk. This mentality is the mentality of an amateur losing trader who is one or two trades away from blowing up. I know there are a handful of traders who have accounts at our preferred broker that have sizeable accounts and have done very well following my trades in the last 3 months. But I am here to tell you that history shows many of those traders BLOW UP in coming months. They foolishly increase their risk and have an unwarranted feeling of self-confidence that sees them increase account sizes and risk to a level where they risk it all.
Don’t let this be you. Celebrate the wins for 5 minutes as I did yesterday, put the ego back in the box and get on with focusing on ensuring you remain clear, calm and decisive.
Comfort is the enemy of achievement.
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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