Today’s Key Market Drivers: 5th October 2018
“Traders are selling down stocks and buying fixed income bonds.”
There is a good lesson in yesterday’s AUD v USD and NZD v USD price action and it doesn’t happen very often but when it does it’s very consistent. I noted in yesterday’s video update that the AUD and NZD had both touched new yearly lows against the US Dollar and that the probability was they would make new fresh lows in the coming 24 hours and they did. Traders get so excited about trading double bottoms and double tops, it’s fodder for investment banks and hedge funds to continue the trend and trade down into the liquidity pool of money that is the collective stop losses of novice traders. I am telling you now NEVER try and catch a falling knife at a new low or if the market is making a historical new high don’t try and short it at that high. Wait for one more push lower or higher and then look for the reversal and only consider an entry when the buyers or selling come in with conviction.
I may have been wrong in the first half of the week regarding the stock market falling this week, however, the past 24 hours have seen a rollover of some significance and in today’s video update I show you where the key technical level is that has been broken. US interest rates including US Bond Yields have been rising and I have not mentioned it for a while but the US 10 Year Treasury Yield (how much the US Government pay you to lend it money) has steadily risen recently and overnight touched a new high of 3.2%. What is likely going to happen when fixed interest investments such as bonds rise in their return traders are going to sell some of their share portfolios and rather than hold risky stock investments they will diversify some of their money into Bonds and this is what we saw through the US trading session on Thursday. I suspect with recent new highs being made on US stock indexes and those highs pushing up again this week we are getting closer and closer to a rollover on US stock indexes and a slide back lower. If this happens the Yen will continue to strengthen and the Aussie and Kiwi Dollars will continue to fall as the US Dollar likely act as a safe haven. When stock markets fall sharply traders tend to buy the US Dollar, Yen and Swiss Franc. These are the markets traditional safe-haven currencies in times of stock market weakness. The fall we saw on US Stock Indexes on Thursday is the biggest one day fall we have seen in two months and whilst one day’s trading does not make a trend where the Dow Jones traded too is worth noting. See my daily video update for more details on this.
Today is a big day for financial markets with the release of September’s US jobs report. The jobs report number for the US is a big economic number every month but this month even more so because of the recent rally on the US 10 Year Treasury Yield to 3.2%. Jerome Powell the US Fed Chair this week talked up the US economy big time and reminded the market the Fed intends to continue to raise rates and Powell said the US economy was remarkedly positive. The reason traders are anxious to see the jobs report today is that if the official jobs number is 230,000 or better for September then traders are going to see this as another positive for the US economy, more interest rate hikes are a certainty and it would likely push the US 10 Year Treasury Yield even higher. As I explained above as this 10 Year Yield rises the guaranteed fixed return on investment of 3.2% or probably better is going to be more and more attractive to investors and the potential is US stock indexes would decline even further and potentially start a mini-correction. This would rally the Yen and US Dollar and sink the AUD and NZD to fresh new lows. The AUD and NZD are not safe haven currencies in any way so any fall on stock markets will see traders sell down AUD and NZD positions and with both Central Banks keeping interest rates at 1.5% and 1.75% and with the US Government now pay 3.2% and rising why hold AUD or NZD.
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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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