Today’s Key Market Drivers: 9th September 2019
European Central Bank expected to inject stimulus.
The European Central Bank this week is expected to lower interest rates into the negative and inject a new round of stimulus measures in the fight against falling inflation and slowing economic growth. The market has been selling the Euro for the past month since Mario Draghi and ECB officials hinted in recent months new stimulus measures were likely needed.
When a Central Bank prints money to inject it into the economy it lowers the value of the currency and usually, what we see happen is traders sell down the currency in anticipation of the announcement. This is exactly what’s been happening to the Euro and even as we approach the statement from the ECB on Thursday more and more traders will be looking to short the currency. My thoughts are that if you are looking to trade the Euro this week you go against the herd and buy it if you see a rally start to occur immediately post the statement.
The Aussie Dollars recent rally is a good example of a market being overly short and all of a sudden traders want to get out of those short positions. The price rebounds like a stretched elastic band and I am predicting that if the ECB’s stimulus and interest rate cut is not as deep as the market expects traders who are short the Euro will exit. Think of it as a theatre door. A fire breaks out and there is only one way out.
Aussie and Kiwi Dollars along with stocks to continue their trends higher.
It won’t be a straight line higher but I am of the view in coming weeks US stock indexes and the ASX 100 will make all-time new highs. I believe we have reached a low in the trade negotiations between the US and China and whilst both sides have a love, hate relationship (more hate than love) the likelihood is sentiment will remain positive that a trade deal of some kind can be done in the coming few months.
This would benefit the Chinese Yuan and drag on the US Dollar and in turn, help keep upward pressure on the Aussie and Kiwi Dollars. The Aussie Dollar could even rise against the greenback if the RBA puts rates down again before Xmas. Why? Because US interest rates may go 0.5% lower and the RBA will likely cut by 0.25% if at all.
US August jobs figures miss estimates.
Friday’s US Non-Farm Payrolls report (jobs numbers) missed estimates coming in at 130K vs the 150K the market expected. Recent US economic data is starting to point towards a potential slowdown in the world’s largest economy and therefore I think the US Dollar will continue to weaken as traders’ price in the expectation of lower interest rates in future quarters.
I don’t believe the US economy is going to have a recession any time soon but based on the Fed’s recent comments I do think it is likely rates will be lower before Xmas.
If you missed Money Exchange on Friday here is the recording.
On last Friday’s show I discussed.
- My favourite trading tips when watching daily charts.
- How to stop self-sabotaging your trades.
- The strategy I use to buy and sell shares.
- All the very latest financial market news that matters.
You can’t pour from an empty cup. Take care of yourself first.
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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