Risk-off trading took hold on Wednesday as global indices started falling lower led by the Nasdaq in the US Open. Lofty valuations and a late-stage cycle always meant that global indices were vulnerable to a correction. Elon Musk sent Bitcoin lower from the start of the week as Tesla announced that it would no longer be accepting Bitcoin as payment due to the environmental concerns involved with mining Bitcoins. At one stage price was down +25% on the week! This drop provides an important lesson for traders. Never let a trade turn into an investment, it can result in horrendous losses. Always manage risk as unexpected events can and do occur.
Other key events from the past week:
- AUD: Rate meeting minutes, May 18: The RBA is focusing on labour data right now and the minutes confirmed the high priority that is for the RBA. As a result interest rate hikes are not expected by the RBA until 2024.
- Gold: Breaks out on daily chart, May 18: As the USD lost value this week, and US 10 year yields stayed flat, gold was helped sharply higher. It was possible to anticipate this and higher inflation expectations are positive for gold as long as the Fed doesn’t start tapering their bond purchases.
- Bitcoin Blues: Fast falls, May 19: Both the environmental concerns raised by Tesla’s CEO Elon Musk, and the announcement from the People’s Bank of China on their WeChat account saying that digital tokens can’t be used as a form of payment sent BTCUSD sharply lower into key support at $32,000.
Key events for the coming week:
- NZD: Interest Rate meeting, May 26: The last CPI data print surprised to the upside for New Zealand. Investors will be watching carefully for any hawkish shifts from the meeting to potentially send the NZD higher next week.
- Nasdaq: Is a correction due? May 27: Investors will be watching the Nasdaq very closely this week. Remember that tech stocks are highly valued and despite decent Q2 earnings recent rallies in the Nasdaq have been very limited.