Today’s Key Market Drivers: 8th April 2019

Fears of a US recession are receding after March jobs figures.


After a month of very average economic data and the Fed’s decision to hold off on any rate adjustments in 2019, economists were pricing in their expectation the US could slip into recession in the last quarter of 2019 and 2020. Those fears were somewhat put to bed on Friday following a far better than expected US jobs number. February’s figures showed just 20,000 jobs were created but when March’s numbers were released the market was surprised to see 196,000 new jobs which was 25,000 more than the traders expected. February’s 20,000 jobs number was also revised up to 33,000.

The US Dollar was higher at the close of trading on Friday after the better than expected job figures but the gains were muted due to the fact average hourly earnings missed expectations and more people dropped out of the workforce in March.

One thing seems clear to me and that is the US is miles away from a recession and the probability the US Fed drops rates is low at this point. The Fed will remain on hold for the balance of 2019 and thus any moves on currency markets will likely be based on the cross currency that trade against the greenback. What do I mean by that?

Let’s use the AUD v USD as an example. If the AUD v USD is going to make any moves substantially higher or lower (5c to 10c) it will likely be as a result of monetary policy decisions at the RBA and not the US Fed. The same goes for all the cross currencies that trade against the US Dollar.

Theresa May turns to Labor in a last ditched effort to win Brexit support.


The British PM has decided to negotiate with the Labor Party in an attempt to negotiate enough support before April 12th to get a Brexit deal through the UK parliament. Labor and even May’s own colleagues have consistently voted down her Brexit proposals and if she can’t get a deal done with Labor the other option on the table is the UK pleads for some kind of extension which the EU is reluctant to approve.

The Pound is back at the bottom of a recent trading range against the US Dollar and technically and fundamentally remains under pressure to go lower. The challenge for traders who have been trading the Pound is the inconsistency of the information flow coming and going about Brexit. Short sharp relief rallies when things are looking positive are quickly met with another failure to see any follow through on a decision and the Pound quickly retraces. I am fortunate that my trading technique for entry is never going to get me into a Pound trade with such sideways price movement and I don’t envy anyone who’s been trying to trade the Pound.

ECB’s statement is likely priced into the Euro already.


The European Central Bank is set to release its April policy statement on Wednesday at 9.45pm AEST and my view is the bad news for the Euro Area has already been priced into the Euro. It is unlikely Mario Draghi is going to say anything new this week and last month’s statement was enough to give traders the ammunition to sell off the Euro. Unless Draghi delivers a more dovish and downbeat assessment of the Euro Area economy than he did last month I don’t expect the selling pressure if there is any to be extreme like we saw in March.

Technically the Euro looks to be making a move off its lows against most of its trading rivals but Wednesday’s ECB statement is likely going to be key to whether the move back higher is continued or a pullback occurs first.

Where traders get caught is getting sucked short into the Euro and this creates an overcrowded short market which is prime time opportunity for investment banks and hedge funds to trade straight back up and into.

US / China trade deal keeps traders guessing.


Donald Trump said last week we will know within 4 weeks if a trade deal can be done with China and the market is certainly eagerly anticipating the announcement which in my view could see currencies such as the AUD and NZD move 3 to 4 cents in the weeks following the announced deal. That’s 300 to 400 ticks either higher or lower over two to three months.

Throughout any trading year, there are generally 3 to 4 major news events that drive base currencies in what I call Super Trends. Super Trends are when Fiscal or Monetary Policy decisions move currencies hundreds of ticks and change a market’s sentiment for a number of months. Another decision coming that could see a Super Trend develop is the conclusion of Brexit but from a big picture perspective, the US / China trade deal has the potential to have a bigger impact globally. Brexit is predominately UK and European based but the US / China trade deal has far wide potential consequences and there is no question the market will see one of the two sides come out winners.

Of course, there is every chance no deal happens and tariffs are implemented again and I don’t think we should discount this probability.

Good things don’t come to those who wait. Good things come to those who hustle.

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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