Daily Market Analysis and Forex News

Everyone was talking about the Turkish lira today.

The emerging-market currency bled profusely after President Recep Tayyip Erdogan sacked the country’s central bank chief on Saturday…two days after interest rates were hiked by 200 basis points.

It tumbled as much as 14% against the dollar and was battered by G10, Asian and Emerging market currencies.

This bombshell development may hit the central bank’s credibility, raise more questions around independence and fuel uncertainty.

Moving away from the unloved Lira, this week’s technical outlook will focus on longer-term trends found on higher timeframes across G10 currencies.

Euro to resume downtrend?

After securing a weekly close below 1.2000, the EURUSD has been trapped within a 150-pip range.

The weekly trend certainly favours bears as there have been constantly lower lows and lower highs. However, the 1.1850 level remains a tough support level to crack. Prices are trading below the 20-week simple moving average but the MACD remains above 0. If the current rebound towards the 1.2000 level proves fruitless for bulls, this could offer another opportunity for bears to attack 1.1800 and even lower.

GBPUSD set for a trend change?

Pound bulls could be running on empty.

Over the past few weeks, the GBPUSD has struggled to push back above the 1.4000 resistance level. Although the trend is bullish on the weekly timeframe, a solid weekly close below the 1.3800 higher low could change the outlook. According to the Relative Strength Index (RSI), prices are already flirting near overbought levels. Should 1.3800 capitulate to the pressure, the next key level of interest may be found at 1.3570.

AUD bulls still in the game

It feels like the AUDUSD is waiting for something. The trend is certainly bullish on the weekly charts as there have been consistently higher highs and higher lows. However, the currency remains trapped in a 300 pip range with support at 0.7600 and resistance at 0.7900. A solid breakout above the 0.7900 level may open the doors towards 0.8006 and possibly higher. Bulls remain in the game as long as 0.7600 proves to be reliable support.

Let’s not forget about the Dollar…

The weekly close above the 91.50 level could encourage a move higher towards 93.40. However, if this proves to be another dead cat bounce…bears could make an unwelcome return. A solid weekly close below 91.50 may open the doors towards 90.00 and 89.00, respectively.

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Turkey has returned to financial market headlines following President Erdogan’s decision to fire the country’s hawkish central bank head on Saturday. The Turkish Lira tumbled 14% against the dollar as trading kicked off in Asia to become one of the worst performing emerging market currencies against the greenback this year. The reverberations were felt in Asian markets, particularly in Japan where the Nikkei 225 fell 2%. While there should not be a strong link between the Turkish Lira and Japanese equity markets, it is believed that retail traders in Japan hold significant leveraged long positions in the Lira as a carry trade. Hence, they have to cover these positions by selling equities in local markets.  

Elsewhere, Asian stocks traded mixed with China’s Shanghai Composite and Shenzhen Component slightly up, while Hong Kong’s Hang Seng and South Korea’s Kospi have fallen into negative territory. This indicates the Turkish Lira slump will only have a limited impact on other high yielding emerging markets with no risk of wider contagion.  

US equity futures are struggling for direction with the S&P 500 spending most of the Asian session between red and green. However, the Nasdaq 100 has gained following a six-basis point fall in US 10-year Treasury yields. Global investors will again be testing the appetite for US debt auctions following a rally of more than 60% in US 10-year yields over just seven weeks. A further spike in yields will bring more volatility and continued rotation into value stocks from growth stocks.

Long term interest rates may have risen for good reason as investors anticipate a strong US economic recovery ahead that could last for several years and brings with it inflation. However, this could also be the biggest threat for risk assets that have been benefiting from an extremely low interest rate environment since the beginning of the Covid-19 pandemic. Despite the recent surge in long term interest rates, they are still considered low when compared to historic averages and that’s why some high asset prices may still be justified at current levels with the Nasdaq 100 having fallen 7% from February’s peak. However, the higher the long-term interest rates go, the more difficult it becomes to justify these valuations.

Companies with the ability to pass on higher prices to customers are likely to be the ones that benefit most and should be overweighted in portfolios. These could be in the industrial, material, financials and commodity sectors.

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

A storm is brewing across Turkey's financial markets as the nation desperately struggles to contain another Lira crisis.

Turkish authorities have taken unprecedented measures to prevent Lira volatility by withholding liquidity, with the swap rate rocketing to 1200% on Wednesday. The extremely high borrowing cost makes it almost impossible for foreign investors to sell the Lira just days before the local elections commence. However, when liquidity eventually returns the Turkish Lira is likely to find itself exposed to severe downside shocks.

The absence of liquidity is impacting the USDTRY with prices trading marginally below 5.400 as of writing. In regards to the technical picture, prices are looking bearish on the daily charts with sustained weakness below 5.400 opening a path towards 5.240.

USDZAR breaks above 14.60 

The currency crunch in Turkey has spooked investors with an appetite for emerging market currencies. Buying sentiment towards the Rand deteriorated today as reflected in the USDZAR. The technical picture suggests further upside with a daily close above 14.600 opening a path higher towards 14.658 and possibly higher.

USDMXN eyes 19.40 

The USDMXN jumped considerably today with prices hitting a daily high of 19.37. Prices have scope to push higher if bulls are able to secure a daily close above 19.40.

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

The manner in which investors hung with anticipation to the address from Turkish President Recep Erdoğan on Tuesday has highlighted that geopolitical risk headlines are back on the frontline radar of financial markets. 

Those hoping that the Turkish president would have made new revelations were largely left empty-handed after Erdogan mostly repeated information that has already been circulated. However, he did speak with enough conviction to show that this situation will not be going away anytime soon. 

This consequently means that an element of political and geopolitical risk will remain in the marketplace, meaning that we can expect further pressure on riskier assets as investors become reluctant to take on risk. Stock markets are at threat of remaining pressured, while many emerging market currencies are once again noticing a lack of buying demand. 

There has however been an increase in valuation for both Gold and the Japanese Yen, highlighting investor anxiety over the return of potential geopolitical tensions and a green light for an overdue rally in safe-haven assets

How will the Trump Administration respond? 

The strongest takeaways from Erdogan’s address were arguably his admission that he will continue to pursue the investigation into the journalist’s disappearance.

This is an incident that has received widespread negativity with world leaders demanding “credible facts” from Saudi Arabia. Most will now be awaiting to see if President Trump comments on the speech from Erdogan earlier today. 

This is obviously an unusual situation which would normally be seen as a political or diplomatic issue, but it has attracted international attention and it highlights that investors do need to reassess potential geopolitical risks as a result. 

Emerging market currencies in crosshair

Emerging market currencies were an easy target for sellers today as concerns over Italy’s budget, trade tensions, Brexit uncertainty and geopolitical tensions soured risk appetite.

With risk aversion likely to remain a dominant theme this week amid the mounting geopolitical tensions, this is bad news for EM currencies. The selling momentum is set to intensify if the Dollar later jumps on potential safe-haven flows.

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

After a rough start to the week, Asian stocks seemed to have found some support as the Turkish Lira steadied below 7 per dollar. Japan’s Nikkei 225 rose 1.8% with all sectors in green territory as the Yen gave up some of yesterday’s gains. Australia’s ASX 200 and the Korean KOSPI also edged higher but gains were limited. However, China’s major indices and the Hang Seng failed to join the rally as poor economic data weighed on sentiment.

Fixed asset investment in China grew at its slowest pace ever, despite authorities announcing several measures to stimulate the economy through fiscal and monetary policies. Meanwhile, industrial production and retail sales also came below forecast in a clear sign that growth in the world’s second largest economy is cooling.

Investors are becoming increasingly worried about how the Turkish crisis would spread into other markets after yesterday’s EM currencies and equities selloff. So far, I think the risk of contagion is limited and yesterday’s selloff was due more to a risk-off mood than a fundamental reason. However, economies with large current account deficits such as India, Argentina and South Africa will come under increased economic pressure as the Fed continues to tighten monetary policy.

Gold below $1,200

Many investors were surprised by the gold selloff yesterday which fell below $1,200 for the first time since March 2017. Gold is perceived to be the safest haven in times of turmoil, so why not this time?

The precious metal has been in a downtrend trajectory since mid-April and has lost 12% from previous 2018 highs as the Dollar managed to strengthen against all EM currencies. Gold has been showing a very close correlation with EM currencies, especially the Chinese Yuan. This is mainly because emerging markets are the biggest consumers of physical gold, particularly China and India. The further these currencies drop, the less purchase power consumers have; as long as investors believe we won’t see a crisis similar to 2008, the Dollar and the Yen will continue to be the safest plays.  However, the moment investors believe that the situation will get out of control and the global economy will fall into a deep recession, gold’s luster will return.

Cryptocurrencies also suffered steep losses

Cryptocurrency bulls also suffered a steep selloff yesterday with Bitcoin falling below $6,000 for the first time since late June. The blame for this falls on the SEC as the U.S. regulator delayed a decision to create the first Bitcoin ETF. If an ETF doesn’t see the light in the coming weeks expect to see a further selloff, as it suggests regulators will continue to fight against bringing cryptocurrencies into the mainstream. A break below $5,770 will intensify selling pressure as it’s the only major support still standing.

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.