Today’s Key Market Drivers – 5th September 2017
US Markets were closed on Monday for Labor Day, which means the true feelings of major players on Wall Street post the North Korean Atomic bomb test on Sunday have not yet been felt by the markets. Asian and European stock indexes closed lower on Monday but with the biggest player in financial markets closed, we won’t know until later this evening if the current negative sentiment remains or if US traders will brush off the North Korean geopolitical crisis and rally markets once again. The risk for anyone who is long on the stock market, short on Gold and short on the Yen or Swiss Franc is that North Korea will continue to test nuclear missiles and this may lead to a military conflict. The obvious solution is for both parties to negotiate a peaceful resolution, however, the US and South Korea are not likely going to come to the bargaining table while North Korea has complete disregard for the United Nations and the resolutions passed against it. The current challenge is not going to resolve itself quickly.
How to do I sensibly evaluate the situation when it comes to trading my money in the markets. I’m a big believer in playing the probabilities and when I do I ensure that I look after my risk. The probability is this geopolitical crisis won’t escalate into a military conflict. It’s possible that it could but the probability is that it won’t. So, I am going to continue to hold my long AUD v JPY position at the same stop loss level and if any new trades present in coming days I will take them and apply the strict risk management principles I use on every trade.
Making money in the markets is a simple game, not an easy game but a simple game of probabilities that if applied with solid risk and reward you can make money using virtually any edge provided you learn to behave correctly after you’ve entered the trade and can replicate the process again and again without deviating. The most important ingredient, in my opinion, is to just win bigger than you lose on average. You can control your entry point, stop loss and profit target and you can control your actions once you enter the trade. What you can’t control is what others do so there is little point in getting wound up about it. Occasionally we all need to remind ourselves of the simple game we are playing and not get lost in all the financial entertainment and opinions of commentators that frankly have no idea about what is going to happen next.
The traditional safe havens dominated currency markets on Monday with the Yen and Swiss Franc higher and Gold getting closer to a one year high. Today sees the RBA release its latest monthly policy statement and whilst traders don’t expect an interest rate adjustment the wording in the statement is what hedge fund and investment banking traders will use to trade off. If there is any forward guidance on interest rates interpreted from the statement you can bet the AUD will be volatile post the release at 2.30pm AEST today. The RBA has left the cash rate on hold now for 13 straight months with many believing the next move will be up rather than down. This is the reason why the AUD has not fallen even though the official cash rate in the US is now close to the same as the RBA. The Aussie Dollar whilst treading water with the US Dollar over the past couple of months has been accelerating higher against the Kiwi Dollar from 1.04 to a new yearly high of 1.11 last week. Any interpretation today from the statement that the next rate adjustment at the RBA will be higher will only likely see the Aussie Dollar gain strength. I noted yesterday the AUD v USD is threatening to break above and close above the weekly EMA for the first time in 4 years. If we see two consecutive weeks of green candles closing above the weekly EMA on the AUD v USD we could be headed back towards 0.85c and beyond.
US Markets will reopen tonight and we have two more major Central Banks, the BOC and ECB reporting this week to help get prices moving. I noted this morning that the latest data is showing long positions on the Euro are at the highest level in 5 years. The European Central Bank is reporting on Thursday with many traders expecting the ECB will move towards tighter monetary policy (higher interest rates) in the next 12 months and this is the single biggest reason why the Euro has rallied so strongly throughout 2017. The same applies to the Bank of Canada, they’ve raised the official cash rate once already this year and just open your charts and see what the Canadian Dollar has been doing against the US Dollar. Rising and rising.
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 key-note 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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