Asia Market: The Future Looks Bright, but the Moment is Hell


  • Despite the S&P’s biggest down day since October, the future looks bright
  • Risk-off panic becomes increasingly self-fulfilling
  • Fed meets market’s expectations i.e. no taper
  • In the face of risk-off Armageddon, oil prices remain well supported
  • Gold is down and remains stuck in a tight range


The S&P was down 2½% heading into the close – the biggest down day since October. Nerves about vaccine rollouts weighed on sentiment and significant volatility among some stocks targeted by retail investors.

Yes, the future looks bright, but the moment is hell.

It’s been a gruelling 24 hours as turmoil reigned over equity markets with reopening narratives getting pushed back well into Q2 due to messed up vaccination and rollout strategies. And, adding to investor pain, there are worries around a subtle hawkish shift in policy from the PBoC. And to rub even more salt in the wounds, macro markets went into complete flux mode on reports that ECB officials believe markets are underestimating the chances of a rate cut spurring desynchronized global growth fears.

Investors had been optimistically shooting for a Spring Break reopening, hoping Governments would start lifting restrictions on economic life once the most vulnerable 20-25% of the population are vaccinated. For now, at this stage of the rollout game that’s little more than a pipe dream. Delays in the rollout of Covid-19 vaccines, coupled with lingering lockdown measures, marked a malocchio of the market’s worst held fears.

Vaccine distribution is the most crucial deliverable to get out of this mess.

And while the US stimulus debate is taking the second chair to the vaccine rollouts, a break in the bi-partisan impasse, or even by the reconciliation process could come at a most welcome time.

VAR meltdowns are the worst of all panic events

In a most unvirtuous circle, the risk-off panic became increasingly self-fulfilling as risk control mechanisms kicked in when early covering in consensus shorts, at massive losses mind you, then gave way to selling high flying technology longs from the Hedge Fund community, in the main to cover margin calls triggering a cascading house of pain effect across broader markets.

We remain in a market dominated by risk-on risk-off proclivities, and even more so as we reach peak vaccine impulse melding with incredibly uncertain economic outlook – not to mention being near the end of the fiscal runway. Still, we’re 100 % landlocked in a liquidity-driven environment where all boats rise with YTD performance of US equities and US dollar lower, all suggesting significant co-movement between risk-on asset classes.

It would be easy to codify the rise in risky asset classes since the post-election risk premiums evaporated simply as risk-on. But, of course, the more significant characteristic has been the rotation within asset classes towards the YTD laggards and ‘reopening’ sectors across the board.

So, a negative view on any one of these risk-on asset classes will almost inevitably also lead to negative opinions across the entire risk-on spectrum, including cyclical commodity prices like oil. Any further headline disappointment, be it vaccine rollout or even US stimulus, could prompt further de-risking over the coming days, despite the still-intact longer-term bull narrative.

I’ve been cautious on markets over the last week and remain so. It always feels horrible to be part of a broader camp looking for a more significant selloff, and it seems with everyone looking for an equity market pullback, their wishes did come true. But it won’t be easy to get back in the saddle with any conviction until the vaccine distribution mess gets sorted as it delays everyone’s plans for a brighter day.

While recent Covid-19 news and snail-paced vaccine rollouts have been horrifyingly discouraging, the big picture does not change in terms of markets outlook. Namely, an unprecedented amount of monetary and fiscal stimulus, a structural shift towards much more spending, a potentially unmatched economic rebound – whether starting in Q2 or Q3 – and a reasonable chance of inflation for the first time in several decades. Once the systematic correction gives way, things could brighten up again.

As we move back into the “look through” trade environment, supported by monetary and fiscal puts, investors are quickly rediscovering that not all growth assets are created equal in a Covid downtrodden economic climate, and the forever fickle FX market is testament to the thesis that nothing goes up in a straight line.


As the markets had widely expected, the Fed made very few changes to the statement. But for investors’ concerns, relevant messaging can be summed up as a single-issue event: no taper. Fed Chair Powell looks to have come with the express intention of conveying just that one message.

However, on the drop of time around coronavirus risk in the Fed statement (they dropped “medium-term”), Powell said they did that because in their view there are vaccinations now. So if there’s one hawkish feature to this press conference, this is it.

The sole reason for the massive balance sheet expansion – Covid-19– will be mostly gone in 6-9 months. And since monetary policy works with long and varying lags, it is, or rather will soon be, time for central bankers to consider policy normalization.


In the face of risk-off Armageddon, oil prices – thankfully for broader markets – remain well supported due to OPEC’s dogged determination to stay in damage control mode, adjusting supply constraints to alleviate the projected oil demand level attrition in Q1.

And mercifully for risk markets, not just oil bulls, crude stocks were down 9.9Mb, bullish vs consensus for a +0.4Mb build in crude, the five-year average of +4.5Mb and more significant than the -5.3Mb draw reported by the API yesterday.

Because stocks are in the midst of a VAR type meltdown, oil prices aren’t necessarily as exposed to the market’s risk-on risk-off proclivity around Game Stop and High Tech de-grossing. But oil prices do remain precariously perched and extremely sensitive to any news about snail-paced vaccine rollout.

Perhaps one factor that has been slightly unnoticed is the substantial rise in energy prices and cyclical commodity prices triggered by expectations of a hyper reflationary environment over the next twelve months and has resulted in a significant increase in market-based inflation expectations, where this unmistakable reflationary exuberance was getting expressed in FX.

The broad recovery in risk assets via oil prices since November has not only affected market-based inflation expectations but boosted every asset class on the street.

I think “risk markets” can thank their lucky stars that Saudi Arabia’s crystal ball outlook was clear as a whistle, and their proactive production cut measure buttressed investors from a more significant meltdown.


The global FX market went into a defensive posture, expressing and hedging the risk-off views through high beta to risk currencies. Given the Canadian dollar’s tight correlation to the S&P 500, the Lonnie quickly became a favoured short form both hedgers and speculators.

The stars aligned for EURO bears as the single currency was simultaneous getting hit with the risk-off ugly stick, overtly dovish ECB member chatter and extended EU lockdowns. But this all-over-the-place communication from the European Central Bank suggests some manoeuvring is going on behind the scenes and doesn’t put ECB President Christine Lagarde in a favourable light.

EURUSD is bounced off 1.2050 support for now as the shift to negative rates remains unlikely given what would happen to the banking system. That being said, the ECB’s verbal currency threats haven’t explicitly included their method for pushing back before, so the odds of a rate cut have gone up ever so slightly.

EM stocks and currencies struggle under the weight of snail-paced vaccination rollouts, both domestically and in the developed market, driving US dollar safe-haven demand.

In USDAsia, some USD buying has gone through the market since New York opened after a relatively quiet, tight-ranged session in Asia. Flow-wise, there has been some buying of USDIDR, USDPHP, USDKRW and USDCNH in social size and small two-way interest in USDINR.

The ringgit and the rest of Asia FX remain ensnared in relatively tight ranges as the big picture does not change its outlook. Namely, an unprecedented amount of monetary and fiscal stimulus. A structural shift towards much more spending, a potentially unmatched economic rebound – whether starting in Q2 or Q3 – and a reasonable chance of inflation for the first time in several decades


With the FOMC only holding the interest course, it wasn’t enough to boost gold, especially in the face of a more robust “safe-haven demand” for the US dollar. Compounding matters, gold is getting sold again, albeit lightly to cover margin calls weighing on sentiment.

Although gold is down, we remain stuck in a tight range. Still, the trend is looking less and less constructive, as the yellow metal struggles to recover from the selloff that took place at the start of the year, and with the historically bullish January seasonality soon to be taken out of the equation.

For a look at all of today’s economic events, check out our economic calendar.

Week Ahead – Market Recovery Under Threat?

The New Normal

This could be a sign of the fragility that remains in the markets but then, the NASDAQ hit new record highs in each of the prior four days and breached 10,000 for the first time ever. This comes before the end of what could be the worst quarter in a century for the economy. Incredible.

Speculation around new waves of coronavirus cases is going nowhere any time soon, as countries look to reopen their economies and save businesses and jobs. But next week also brings a plethora of interest rate decisions as well which means more rate cuts and more asset purchases. In other words, more fuel for the fire. The disconnect between the markets and the global economy isn’t going to improve any time soon.

Key Economic Releases and Events

Monday 15th June

Time (UK) Country Indicator Name Period
00:01 United Kingdom House Price Rightmove MM May
03:00 China (Mainland) Urban Investment (YTD)YY May
03:00 China (Mainland) Industrial Output YY May
03:00 China (Mainland) Retail Sales YY May
03:30 Singapore Unemployment Rate Final SA Q1
Indonesia Trade Balance (Bln of $) May

Tuesday 16th June

07:00 United Kingdom Claimant Count Unem Chng May
07:00 United Kingdom ILO Unemployment Rate Apr
07:00 United Kingdom Employment Change Apr
07:00 United Kingdom Avg Wk Earnings 3M YY Apr
07:00 United Kingdom Avg Earnings (Ex-Bonus) Apr
09:30 Hong Kong Unemployment Rate May
10:00 Germany ZEW Economic Sentiment Jun
13:30 United States Retail Sales Ex-Autos MM May
13:30 United States Retail Sales MM May
13:30 United States Retail Ex Gas/Autos May
14:00 Russia Industrial Output May
14:15 United States Industrial Production MM May
14:15 United States Capacity Utilization SA May
14:15 United States Industrial Production YoY May
15:00 United States Business Inventories MM Apr
21:30 United States API weekly crude stocks 8 Jun, w/e
Japan JP BOJ Rate Decision 16 Jun

Wednesday 17th June

00:50 Japan Trade Balance Total Yen May
01:30 Singapore Non-Oil Exports MM May
01:30 Singapore Non-Oil Exports YY May
07:00 United Kingdom Core CPI YY May
07:00 United Kingdom CPI YY May
08:30 Sweden Unemployment Rate May
08:30 Sweden Total Employment May
10:00 Euro Zone Construction Output MM Apr
10:00 Euro Zone HICP Final MM May
10:00 Euro Zone HICP Final YY May
12:00 South Africa Retail Sales YY Mar
13:30 United States Building Permits: Number May
13:30 United States Housing Starts Number May
13:30 Canada CPI Inflation MM May
13:30 Canada CPI Inflation YY May
14:00 Russia GDP YY Quarterly Revised Q4
15:30 United States EIA Weekly Crude Stocks 12 Jun, w/e
23:45 New Zealand GDP Prod Based QQ, SA Q1
23:45 New Zealand GDP Prod Based YY, SA Q1
23:45 New Zealand GDP Prod Based, Ann Avg Q1
23:45 New Zealand GDP Exp Based QQ, SA Q1

Thursday 18th June

02:30 Australia Employment May
02:30 Australia Full Time Employment May
02:30 Australia Participation Rate May
02:30 Australia Unemployment Rate May
08:30 Switzerland SNB Policy Rate Q2
09:00 Norway Key Policy Rate 18 Jun
12:00 United Kingdom BOE Bank Rate Jun
12:00 United Kingdom Asset Purchase Prog Jun
12:00 United Kingdom GB BOE QE Gilts Jun
12:00 United Kingdom GB BOE QE Corp Jun
12:00 United Kingdom BOE MPC Vote Hike Jun
12:00 United Kingdom BOE MPC Vote Unchanged Jun
12:00 United Kingdom BOE MPC Vote Cut Jun
13:30 United States Initial Jobless Claims 8 Jun, w/e
13:30 United States Jobless Claims 4-Wk Avg 8 Jun, w/e
13:30 United States Continued Jobless Claims 1 Jun, w/e
13:30 United States Philly Fed Business Indx Jun
14:00 Russia Cbank Wkly Reserves 8 Jun, w/e
15:00 United States Leading Index Chg MM May
Indonesia 7-Day Reverse Repo Jun
Indonesia Deposit Facility Rate Jun
Indonesia Lending Facility Rate Jun

Friday 19th June

00:30 Japan CPI, Core Nationwide YY May
00:30 Japan CPI, Overall Nationwide May
07:00 United Kingdom Retail Sales MM May
07:00 United Kingdom Retail Sales Ex-Fuel MM May
07:00 United Kingdom Retail Sales YY May
07:00 United Kingdom Retail Sales Ex-Fuel YY May
11:30 Russia Central bank key rate Jun
13:30 Canada Retail Sales MM Apr
13:30 Canada Retail Sales Ex-Autos MM Apr
Russia GDP YY Monthly May
Russia Retail Sales YY May
Russia Unemployment Rate May
Russia Real Wages YY Apr



It seems a second wave of the coronavirus is hitting the US and could very well derail a lot of the reopening momentum that was taking place.  As states reopen and Americans return to pre-pandemic behavior, it is expected that a rise in new coronavirus cases would occur.

The White House is convinced they have yet to see any relationship between reopening and increased cases.  If hospitalizations continue to increase, you could see many individuals decide to remain a part of the stay-at-home economy.  If the virus spread intensifies, restrictions will be tightened and that will put a damper on the economic recovery prospects.

On Tuesday, Fed Chair Powell will follow his downbeat FOMC presser with his semi-annual monetary policy report to the Senate Banking Committee.  With little time between events, it is unlikely for Powell to deviate from Wednesday’s rate decision.  Traders will also pay close attention to the release of US retail sales, which is expected to show a rebound from the record low seen in April.

US Politics

Economic jitters and virus concerns will likely push the Trump administration into supporting a second round of stimulus payments for Americans.  Coronavirus relief talks were not supposed to happen until late July, but that should change given the recent jump in cases throughout the country.

On Friday, President Trump returns to the campaign trail in Oklahoma, his first live rally since March.

Democrats are eagerly awaiting former-VP Biden’s decision on his running mate.  Prior to COVID-19, the Democratic National Convention was originally scheduled in July, meaning we should have found out his decision by June.  Since the convention was delayed till August 17th, he will have more time to evaluate his candidates.  Biden will turn 78 a few weeks after the election, so his VP selection will be critical for many voters.


The UK experienced its sharpest contraction on record in April, the first full month of the lockdown. The economy contracted by 20.4% at the start of the second quarter which is expected to be the worst month of the three.

Next week the Bank of England is expected to increase its bond buying in response to the pandemic, with £100-200 billion added to its quantitative easing program. This comes as government borrowing spikes to fund the crisis which would have otherwise risked pushing up borrowing costs.


High level talks between Boris Johnson and Ursula Von Der Leyen are expected to take place next week, possibly as early as Monday, as the two sides look to reconcile the significant differences ahead of the 31 December transition expiry. As it stands, no deal is the default and the UK is expected to formally rule out an extension once again. We’ve seen this all before though and compromise tends to come late in the day. Still, business could very much do without this in a pandemic year.


The Central Bank of Russia is expected to cut interest rates by 50-100 basis points when it meets next week, from 5.5% where it currently stands. Like many others, the economy has been ravaged by the coronavirus crisis and contracted 12% in April, and May is not expected to be any better.


The SNB is not expected to cut interest rates next week, with the main policy rate remaining at -0.75%. The central bank is active in FX markets, with its holdings of foreign currencies recently rising above 800 billion Swiss francs – greater than the output of its economy – as it seeks to stop the currency rising too far as a result of safe haven flows. The central bank hasn’t set an official floor for the EURCHF pair – hopefully learning lessons of the past – but 1.05 is believed to represent the informal level.


The Norges Bank is not expected to cut interest rates next week, with the main policy rate currently sitting at 0%.


China Industrial Production (4.5%E) and Retail Sales (-2.0%E) on Monday. Poor number could see Asian markets weaken depending on Wall Street’s friday performance. Ongoing tensions with the US over HK, trade and Covid-19.

No other significant data this week.

Hong Kong

Protests have died down for now over the securities law. Possible resurgence this weekend. HSBC and Stan Chart under fire for backing China’s HK security law. No significant data this week.


Economy continues reopening but Covid-19 cases are spiking, markets negative. Standoff with China continues in the Himalayas but negotiations continue.


Australian stocks and Australian Dollar sold heavily on equity correction into the week’s end. Negative results on Friday for Wall Street should see that trend continue into the first part of the week. Australian markets are among most vulnerable to deep bull market correction. RBA minutes Tuesday. Will look for talk about negative interest rates.Potentially bullish for stocks. Unemployment Thursday (6.9% E) will drive intraday volatility. Otherwise what happens in the US will drive sentiment.


BOJ policy meeting Tuesday. Unchanged at -0.10% but looking out for more stimulus measures. Stocks positive. Tankan and Trade Balance Wednesday. Unlikely to impact markets. Markets will be led by Wall Street after sell-offs this week.



Oil didn’t escape yesterday’s backlash, with crude falling more than 5% on apparent fears around rising case numbers. Again, we have to take this in the context of an asset class that has done rather well over the last couple of months. It’s been some rebound and I think some serious profit taking may have kicked in. It’s creeping higher again today but $40 may remain an upside barrier for WTI.


Gold has been range-bound for the last couple of months since it first tried to break $1,750 only to quickly run out of steam. It’s tried again a few times since, each as unsuccessful as the last, and it looks to be suffering the same fate again this time. It’s pushing a little higher again as it looks to capitalize on dollar weakness but we could see it run into difficulties once again, unless the greenback continues its journey south.

For a look at all of today’s economic events, check out our Economic Calendar.

Craig Erlam, Senior Currency Analyst at OANDA

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

India and U.S. to Sign Trade Deal – is a Free-Trade Agreement Next?

U.S. President Donald Trump has been busy on the international trade front in the New Year. Earlier this month, Trump signed the “Phase One” trade deal with China, a limited agreement that marks a significant breakthrough in the U.S.-China trade war. This achievement was quickly followed by the U.S. Senate ratifying the U.S-Canada-Mexico (USMCA) trade accord, which replaces the NAFTA agreement and covers the largest free-trade bloc in the world. Trump has plans for free trade deals with the UK and the EU, and India could be in line as well. Trump will visit India next month and will sign a trade deal worth more than $10 billion. These figures pale in comparison with the deals reached with China and the United States’ North American neighbors, but India is the second-largest emerging economy in the world (after China) and is the fifth-largest economy in the world. With a population of 1.3 billion, the potential market for U.S. exports is huge. This trade deal is expected to lead to a free trade agreement between the U.S. and India.

Similar to the situation with China, the U.S. and India have been in a trade spat since 2018. At that time, the Trump administration imposed stiff tariffs on Indian steel (25%) and aluminum (10%). India countered with its tariffs on a wide range of U.S. products. The U.S. took the dispute to the World Trade Organization, which ruled in October that India had breached global trade rules.

The U.S. and India have now decided to move in a positive direction, and the trade deal is a significant step forward in forging a new trade relationship. The prize for both sides, of course, would be a full-fledged free-trade agreement. For India, it would be of a source of economic growth and pride. For the U.S., it would mark the removal of barriers to a rapidly growing economy with over one billion potential customers, which represents an enticing market for American exporters.

IMF Sounds Alarm as Indian Economy Gripped by Slowdown

The International Monetary Fund has sent out a stark warning about India’s economy, which is experiencing a significant economic slowdown. The Indian economy has boasted one of the fastest growth rates in the world, so much so that it has been an important driver of global growth. What’s behind the downturn of the ‘Indian miracle’?

According to the IMF, the economy has suffered from a decline in consumption and investment, which has led to less tax revenue for the government. In October, the IMF sharply reduced its growth forecast for 2019, from 6.1% to just 5.0 percent. The downturn is even more severe when we focus at the third quarter of 2019 – on an annualized basis, growth fell to 4.5%, compared to 7% in Q3 of 2018.

With the economy slowing down, the Indian government may be tempted to embark on public spending projects, but this will only increase the country’s debt load. This approach is clearly anathema to the IMF, which recently sounded the alarm over the heavy debts of emerging market nations – debts which could become unsustainable and trigger a financial crisis if interest rates were to rise. Rather, the IMF has urged India to reduce its debt: “Economic development projects and enhanced social initiatives in India will be vital in the coming years,” the IMF said in a recent statement. “But to generate the revenue needed to get them off the ground, India’s debt – among the highest in emerging markets – must be reduced.”

According to Gita Gopinath, chief economist at the IMF, the Reserve Bank of India should continue to reduce interest rates in order to stimulate the economy. The bank has already cut trimmed rates five times this year, and Gopinath says there is more room for rate-cutting.

As the year 2019 fades into the sunset, Indian policymakers will have to make some tough decisions in order to re-energize the economy in 2020.

Gold In Indian Rupees, The USD And The Many Non- USD Currencies

Gold has a special place in the Indian history and culture, India is the second biggest “consumer” of gold (right after China). USA’s gold consumption is third biggest in the world, but it’s less than one fourth of the Indian gold consumption. This means that to a considerable extent, the Indian gold buyers can influence gold’s fundamental situation.

Moreover, India is the second-largest English-speaking country (US comes in first with 268 million English speakers, while about 125 million people speak English in India). Since we’re writing in English and about gold, it’s only natural to discuss the Indian side of the gold market. And by that, we mean taking a closer look at gold’s price in the Indian rupee.

In the recent years the value of the Indian currency has declined compared to the value of the U.S. dollar, and so did gold. This mean that if you live in India, you have yet another reason to be holding gold and one less reason to worry that gold is going to decline profoundly. Yet, the situation is not that simple. After all, the huge value increases in the USD Index translated into declines in gold that were even bigger. This means that from the non-USD point of view, for instance from the Indian point of view, gold price still declined. Where does that lead us to?

It leads us to checking what really happened with the price of gold in terms of Indian rupees during two situations that appear most similar to the current situation with regard to the USD Index movement (the 80s and mid-90s). In particular, the less distant from these situations – the mid-90s – is outstanding in terms of similarity, and looking at what happened to gold form the Indian perspective at that time should give us invaluable insight into what may be lurking just around the corner.

First things first – why should you care about some two situations from a rather distant past? We wrote about it, but it was already some time ago, so it seems appropriate to go over it once again.

Let’s start with the fact that the USD Index is holding up extremely well. It’s not plunging and it’s moving in a rising trend channel despite Trump’s – U.S. President’s – numerous calls for lower USD values, the major shift in Fed’s policy (moving from monetary tightening to loosening). If it happens for a day, or a week, or even a month, it could be accidental. But it’s been taking place for many months. And it’s not a coincidence either.

The USD Index is after an epic breakout and a huge verification thereof.

The Big Picture View of the USD Index

The 2014-2015 rally caused the USD Index to break above the declining very-long-term resistance line, which was verified as support three times. This is a textbook example of a breakout and we can’t stress enough how important it is.

The most notable verification was the final one that we saw in 2018. Since the 2018 bottom, the USD Index is moving higher and the consolidation that it’s been in for about a year now is just a pause after the very initial part of the likely massive rally that’s coming.

If even the Fed and the U.S. President can’t make the USD Index decline for long, just imagine how powerful the bulls really are here. The rally is likely to be huge and the short-term (here: several-month long) consolidation may already be over.

There are two cases on the above chart when the USD Index was just starting its massive rallies: in the early 1980s and in mid-90s. What happened in gold at that time?

Gold Performance When the USD Index Rises

These were the starting points of gold’s most important declines of the past decades. The second example is much more in tune with the current situation as that’s when gold was after years of prolonged consolidation. The early 1980s better compare to what happened after the 2011 top.

Please note that just as what we saw earlier this year, gold initially showed some strength – in February 1996 – by rallying a bit above the previous highs. The USD Index bottomed in April 1995, so there was almost a yearly delay in gold’s reaction. But in the end, the USD – gold relationship worked as expected anyway.

The USD’s most recent long-term bottom formed in February 2018 and gold seems to have topped right now. This time, it’s a bit more than a year of delay, but it’s unreasonable to expect just one situation to be repeated to the letter given different economic and geopolitical environments. The situations are not likely to be identical, but they are likely to be similar – and they indeed are.

What happened after the February 1995 top? Gold declined and kept on declining until reaching the final bottom. Only after this bottom was reached, a new powerful bull market started.

Please note that the pace at which gold declined initially after the top – in the first few months – was nothing to call home about. However, after the initial few months, one could report gold’s decline as really fast.

Let’s compare the sizes of the rallies in the USDX and declines in gold. In the early 80s, the USDX has almost doubled in value, while gold’s value was divided by the factor of 3. In the mid-90s, the USDX rallied by about 50% from its lows, while gold’s value was divided by almost 1.7. Gold magnified what happened in the USD Index in both cases, if we take into account the starting and ending points of the price moves.

However, one can’t forget that the price moves in USD and in gold started at different times – especially in the mid-90s! The USDX bottomed sooner, which means that when gold was topping, the USDX was already after a part of its rally. Consequently, when gold actually declined, it declined based on only part of the slide in the USDX.

So, in order to estimate the real leverage, it would be more appropriate to calculate it in the following way:

• Gold’s weekly close at the first week of February 1996: $417.70
• USDX’s weekly close at the first week of February 1996: 86.97

• Gold’s weekly close at the third week of July 1999: $254.50
• USDX’s weekly close at the third week of July 1999: 103.88

The USD Index gained 19.44%
Gold lost 39.07% (which means that it would need to gain 64.13% to get back to the $417.70).

Depending on how one looks at it, gold actually multiplied USD’s moves 2-3 times during the mid-90 decline.

And in the early 1980s?

• Gold’s weekly close at the third week of January 1980: $845
• USDX’s weekly close at the third week of January 1980: 85.45

• Gold’s weekly close at the third week of June 1982: $308.50
• USDX’s weekly close at the third week of June 1982: 119.01

The USD Index gained 39.27%
Gold lost 63.49% (which means that it would need to gain 173.91% to get back to $845).

Depending on how one looks at it, gold actually multiplied USD’s moves by 1.6 – 4.4 times during the early-80 decline.

This means that just because one is not using U.S. dollars as their primary currency, it doesn’t result in being safe from gold’s declines that are accompanied by USD’s big upswings.

Let’s get back to the topic of gold price in Indian rupees. If gold’s trading in 2020 is going to resemble its mid-90s performance, then it would be a good idea to check what happened with gold in terms of Indian rupee at that time.

Gold from the Indian Perspective

Gold price in terms of the Indian rupee declined about 30% from its 1996 top before forming the final bottom. That’s not a small move – that’s a move that could erase a large part of the buy-and-hold investors capital and it would take many months to just get back to the initial level. If one managed to get out close to the top, or even profit thanks to adjusting one’s positions to the ones that profit from gold’s decline, it would be entirely different and much more pleasant.

The highest weekly closing price of 2019 is 109151 per oz. A 30% decline from this high would imply a move to about 76400. Based on the nearby technical support levels, this would imply either a decline back to the late-2016 bottom, or the 2015 bottom. If we see a particularly bearish market news, gold could decline even below the 2015 bottom. Of course, we can’t guarantee that this will indeed happen, but it seems that gold could decline quite a lot before the final bottom forms.

If it seems like it can’t happen, because the price rallied so high so soon, please note that the times after sharp upswings were exactly the times when gold was starting the declines – especially in 2013 and 2016.

All the above might seem quite complex, so let’s discuss it once again, this time using a brief Q&A:

Gold is likely to decline in the following months, also in terms of the Indian rupee.

– But why? It’s been rallying so nicely in the recent years…

There are numerous reasons, but one of the key ones is the epic breakout in the USD Index that was more than confirmed. Big USD Index rallies follow such breakouts, and they sooner or later trigger big declines in gold.

– So what? If I live in India, why should I be concerned with the U.S. dollar? I’m not using it and I’m buying gold with rupees.

The big USD Index rallies trigger declines in gold that much bigger than the said rallies. This means that even if you never bought anything using U.S. dollars, the big increase in its value can still affect you, if you’re investing or considering investing in gold.

– Really? Did it happen in this way when the USD was previously gaining value quickly?

It did. Back then – in mid-90s – gold priced in the Indian rupee declined by about 30%. It doesn’t have to happen again, and nobody can guarantee any outcome, but that’s exactly what happened.

– Ouch… So, is a decline in gold really likely in 2020?

Again, we can’t guarantee anything with regard to performance, market movement, or individual stock picks, but in our view it’s very likely that we’ll see much lower gold values before we see much higher prices. A decline below $1000 in terms of the USD is likely in our view. Gold price in terms of the Indian rupee could move to its late-2016 bottom, the 2015 bottom or even below it. The $890 target in the USD terms seems to be the most precise one and it appears to be a good idea to monitor gold price movement and make gold price forecasts based on the USD perspective in order to determine the optimal entry point for big long positions and perhaps to exit the positions that would be aimed to profit from lower gold prices.

The full version of this analysis isn’t just about gold in Indian rupee terms though. By the way, such a view is beneficial to the many non-U.S. currencies too. This analysis’ full version discusses yesterday’s strength in mining stocks and the key factors at play and the targets of our promising short position. We encourage you to join our subscribers and reap the rewards. Subscribe today!

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Thank you.
Przemyslaw Radomski, CFA
Editor-in-chief, Gold & Silver Fund Manager
Sunshine Profits – Effective Investments through Diligence and Care

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All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski’s, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Forex Daily Recap – USD/INR Dropped over RBI Payout to the Government


Indian rupee pair was -0.71% down on Tuesday following RBI Payout to the government. Notably, the Central Bank approved the transfer of higher-than-expected dividend to the Indian government. Last week, Indian Finance Minister Nirmala Sitharaman had come up some stimulus plans to boost the economy. Hence, the market had remained under fear, expecting a miss of the fiscal target this time.

USDINR 1 Day 27 August 2019
USDINR 1 Day 27 August 2019

Nevertheless, RBI’s payout of around $24.62 billion was almost more than double the previous $9.51 billion. Such a decisive move by the RBI has significantly helped the government mitigate risks. In the interim, the bond yields had shot to a three-week high on the back of weak global economic conditions.

On the technical side, the pair had rebounded to the south side after testing the 72.312 resistance handle. Anyhow, a 1-month-old slanting ascending support ensured to prevent the USD/INR bears from taking further down moves. Nonetheless, the pair continued to stay in the upper vicinity of the Bollinger Bands, sustaining a strong positive trend. Meantime, the oversold Relative Strength Index (RSI) has already started playing its role in dragging down the pair.


Today, Cable bulls were resiliently moving to the upside, aiming the overhead red Ichimoku Clouds. In the middle of the day, Opposition Leader Jeremy Corbyn backed the no-confidence vote delay decision of the cross-party. At the same time, Corbyn has prioritized to use legislation to stop a no-deal Brexit by the end of the week. Interim, Brexit Party Leader Nigel Farage warned UK PM, asking to perform a “clean break Brexit” on Oct 31. Farage added that any Brexit fudge would provoke for a general election in the autumn.

GBPUSD 1 Day 27 August 2019
GBPUSD 1 Day 27 August 2019

Needless to say, the GBP/USD pair soared over the Brexit optimism, rising above the base line and conversion line of the Ichimoku Clouds. Also, though the MACD technical indicator contained multiple green histograms pointing north, the MACD and signal lines remained below the zero line.


Healthy 20.1204 resistance level was putting a lid over the pair’s daily gains last day. Today, the USD/MXN pair was 0.63% up over adverse Mexican July Trade and Unemployment data. The market had expected the July Trade Balance to report 460 million this lower than the previous 2.56 billion.

USDMXN 1 Day 27 August 2019
USDMXN 1 Day 27 August 2019

However, the actual data stood even below the estimates, recording -1.12 billion this time. Notably, the Unemployment rate came up in-line with the market hopes of around 3.7%. Meanwhile, underlying Parabolic SAR and a robust 1-month-old slanting support kept cheering the bulls.


The Aussie pair was -0.27% down on Tuesday despite RBA’s Debelle’s findings of the country’s shock absorbing economy. Debelle noted that Australia’s net foreign liabilities as a percentage of the national GDP have remarkably lowered to the lowest mark. And, also most of the debt remained in AUD, making the currency a shock absorber.

“Australia has clearly been a major beneficiary of that system. The current threats to the system are a significant risk to both Australia and the world,” Debelle said.

On the technical side, the pair continued to maintain a range bound approach, trading below the Ichimoku Clouds.

Forex Daily Recap – Ninja Dropped Sharply as China Retaliates with Tariffs


The Japanese Yen pair was testing the firm 105.520 support level in the North American session. Notably, the USD/JPY pair remained 0.81% down on Friday on the backdrop of US-Sino trade updates. Today, China proclaimed that it would impose 5% tariff on US soybeans from Sept 1. The Chinese counterpart also declared a 10% tariff on US wheat, corn and sorghum from Dec 15. Additionally, a 10% tariff on US beef and pork would come into action from Sept 1. Quite noticeably, such an immediate retaliatory tariff action develops over the latest US tariff imposition on $300 billion worth of Chinese goods.

USDJPY 1 Day 23 August 2019
USDJPY 1 Day 23 August 2019

“Any escalation in the trade dispute with China is a major concern to U.S. pork producers,” the National Pork Producers Council said in a statement.

Following this news, the USD/JPY pair shed the most gains amongst other forex pairs. On the technical side, the Ninja continued to trade under the shadow of Red Ichimoku Clouds. Also, the base line stood above the pair. Anyhow, the conversion line appeared to move inline with the pair, generating conflicting signals. Any movement on the downside would have immediately activated 105.050 and 104.656 support lines.


The Indian Rupee had maintained some strong uptrend price actions since last few sessions, forming a rising wedge pattern. Quite remarkably, the USD/INR bulls have thrashed above the 71.752 and 71.808 sturdy resistance marks. Anyhow, the primary trend as the day approached closing was a negative one. Nevertheless, strong support conflux made up of significant SMAs remained stalled on the downside to prevent any potential daily sharp falls.

USDINR 1 Day 23 August 2019
USDINR 1 Day 23 August 2019

Today, the Indian rupee currency rose in value as the country’s Finance Minister Nirmala Sitharaman, declared government’s moves to boost the economy. Minister mentioned that the pre-budget position was retained. The main highlights read that the Foreign Institutional Investors would remain exempted from the Super-rich tax radar, as mentioned in the budget. Also, the government has removed the surcharge on the long term, and short term gains attained out of equity share trading.

USD Index

Today, Fed Chair Jeremy Powell said that the US stays in a safe place and will act appropriately in the upcoming meetings. Meantime, the bears had already conquered and were controlling the US Dollar Index. From a broader perspective, the Greenback was forming a rising wedge pattern that further supported the bearish sentiment. Somehow, the Parabolic SAR remained below the Greenback, giving hopes to the near-term bulls.

US Dollar Index 1 Day 23 August 2019
US Dollar Index 1 Day 23 August 2019

Powell also mentioned that the bank would primarily focus on the uprising US-Sino trade tensions and also the possibility of a hard brexit. On the other side, US President Trump again took to Twitter on Friday as Powell was set to speak saying, “Now the Fed can show their stuff,”


The Loonie pair remained slightly up as estimated in our USD/CAD daily forecast article. Noticeably, the Canadian June MoM Retail Sales data had recorded upbeat reports, surpassing above the market estimates. However, the US July New Home Sales data published adverse data this time, dragging down the pair. Along with that, the elevated US-Sino trade tensions out of the latest Chinese retaliation added more oil to the fire.




Forex Daily Recap – Rupee Pair Slipped -0.48% over Economic Stimulus Hopes


The Indian Rupee pair plunged more than 0.48% on Friday. In other words, the Indian Rupee currency rose over the US Dollar counterpart. Such an upliftment in the currency came following stimulus expectations from the Modi government in the next two weeks period.

USDINR 1 Day 16 August 2019
USDINR 1 Day 16 August 2019

PM Narendra Modi had reviewed the state of the economy and had asked the Finance Minister to provide detailed explanations of the current economic slowdown. Hence, speculations developed, suggesting the Modi v2.0 government to come up with a stimulus package containing New Policy framework, and tax cuts. Meanwhile, traders also focused on the growing Greenback and the rising Foreign Capital Outflows. Recent budget modification for a tax surcharge on the Super-rich had triggered this immediate Foreign Investment withdrawal from India.

On the technical side, the USD/INR had already breached above a major counter trendline, strengthening the bulls. Notably, significant resistances stalled at 71.60, and 71.82 levels were restricting the upside. However, the pair was forming a bearish rising wedge trading pattern since the start of August. Nevertheless, 70.86 and 70.47 support lines remained on the flip side, preventing any potential daily losses.

USD Index

Bulls continued to take over the bears even today. Anyhow, the 78.6% Fibonacci Retracement level confined the pair’s daily gains. Nevertheless, the US Dollar Index was hovering well above the Ichimoku Clouds, pleasing the buyers since last few sessions.

US Dollar Index 1 Day 16 August 2019
US Dollar Index 1 Day 16 August 2019

Quite noticeably, the US July Housing data showcased mixed reports on Friday. The July MoM Building Permits recorded 1.336 million over 1.270 million forecasts. On the contrary, the July MoM Housing Starts data published 1.191 million in comparison to the previous 1.241 million. Laterwards, August Michigan Consumer Sentiment Index rose 6.58% over 97.2 points market hopes, reporting 92.1 points.


Cable continued to keep the overall downtrend intact, staying under the roof of a multi-month old slanting resistance level. Interim, rising odds for a no-deal Brexit was making the Cable traders upset. Latest reports suggested that Germany was ready for a no-deal Brexit and would urge the EU to stay firm over the same stance.

GBPUSD 1 Day 16 August 2019
GBPUSD 1 Day 16 August 2019

On the other hand, Opposition leader Jeremy Corbyn was struggling with extra efforts to prevent a no-deal Brexit. Recently, Corbyn mentioned openness to use legislation in case of a no-confidence vote failure to bring down the ruling party. Anyhow, the Opposition leader aims for further delay in the exit process rather than a no-deal Brexit on October 31. If at all the pair had made a positive drift then strong resistances stemmed at 1.2185, 1.2485, and 1.2766 levels would have got activated.


Fiber had recently made an attempt to jump into the upper vicinity of the Bollinger Bands, providing an opportunity to the bulls. Nevertheless, the EUR/USD rebounded below the center line of the Bollinger Bands, sustaining downtrend price actions.

EURUSD 1 Day 16 August 2019
EURUSD 1 Day 16 August 2019

The European economic docket remained quite silent today amid a lack of significant economic events. In the meantime, the June Eurozone Trade Balance came around €20.6 billion over €16.3 billion. Despite that, the downtrend continued to drag down the pair’s accumulated gains. Stable 1.1064 support handle ensured to limit downside. A bearish crossover in the MACD technical indicator guided bear’s further price actions.


Forex Daily Recap – Indian Rupee Ascended Slightly amid Modi 2.0 Budget


The USD/INR pair kept the 10-day old downtrend intact as Modi Sarkar 2.0 released the Indian Budget for the fiscal year 2019-20. Nirmala Sitaram, the Indian Finance Minister, came up with her maiden budget, aiming to increase the country’s economic size to $5 billion by 2024. The highlight for the budget remained the downward revision of the fiscal deficit amid a sagging economy. The fiscal deficit was brought down from 3.4% to 3.3%, surprising the analysts who had forecasted more than 3.7% this time.

USDINR 180 Min 05 July 2019
USDINR 180 Min 05 July 2019

No fiscal slippage means growth is now in RBI’s domain, so more than 25 bps rate cuts possible. Also, sovereign bonds may mean lower domestic issuance and not just this fiscal year, but going forward, this may be a new trend.”, said a senior fixed income trader at a private bank.


On the US economic docket, two highly significant events had lined up for the day. Out of which, the June Non-Farm Payrolls reported upbeat figures, reporting 64K higher than the market expectation of 160K. The other one was the June YoY Average Hourly Earnings that reported merely 0.1% lower than the consensus estimate of 3.2%. On an overall basis, the USD bulls appeared overtaking the USD bears, making the Greenback conquer new levels.

US Dollar Index 180 Min 05 July 2019
US Dollar Index 180 Min 05 July 2019

Since the start of July, the US Dollar was attempting rigorously, putting all energy to break and move above the strong 96.88 resistance. Somehow, on the back of positive US data releases, the Greenback accomplished this breach action. Though elevated, the USD Index continued to stay within the 9-day old ascending trend channel. With such strong price actions in the US Dollar Index, the overall sentiment has turned from bearish to bullish. The Greenback went above thrashing the significant 200-day SMA, which was the major barrier thwarting its upside movements.


On the backdrop of a Greenback rise, a drop in the Euro pair was quite obvious. During the day, the EUR/USD pair dropped from 1.1300 level, reaching 1.1260 level. Anyhow, the pair had already formed a descending triangle pattern signaling a near-by bearish formation.

EURUSD 180 Min 05 July 2019
EURUSD 180 Min 05 July 2019

However, if the Fiber had continued to drown, then the 1.1236 and 1.1215 support marks would have got activated. The RSI technical indicator was pointing near 33 level, revealing the sellers taking over the buyers. Earlier the day, the German May MoM Factory Orders came around -2.2% over -0.1% forecasts, pricing in more pullback.


During today’s session, the Loonie had lost some significant pips as Canadian June Net Employment figures missed estimates. The market had expected a 10.0K this time over the previous 27.7K statistics. Somehow, the actual numbers reported a negative 2.2K, pouring cold water over the Canadian economy.  While other reports that included the June Unemployment data and Average Hourly Earnings recorded in-line with the Street estimates. Laterwards, the June Ivey Purchasing Managers Index also reported weaker figures, 4.96% below estimates.

USDCAD 60 Min 05 July 2019
USDCAD 60 Min 05 July 2019

In the meantime, the USD/CAD pair was gathering strength amid Greenback upliftment and a Loonie decline. Anyhow, the positive price actions in the Loonie pair was insufficient to break the sturdy 1.3140 resistance. The RSI indicated a jump above 60 mark, showing huge buyer interest.


Forex daily Recap – USD/INR Declined on Interest Rate Cut Announcement


The Rupee pair started trading on Thursday near 69.64 levels and was hovering near 69.19 levels at around 15:31 GMT. The pair showcased a smooth decline throughout the day in the middle of Central Bank rate cut. The RBI announced a reduction in the interest rates by 25 bps, making the repo rate to 5.75%. The Bank also changed its stance from “neutral” to “accommodative”, leaving space for more upcoming rate cuts.

USDINR 60 Min 06 June 2019
USDINR 60 Min 06 June 2019

RBI Policymakers have reduced the repo rate for third straight time. Meanwhile, the Officials also slashed the GDP growth forecast. The Bank decreased the forecast figures from the previous 7.2% to 7.0% as inflation stays below 4% target. The Central Bank has taken this stance of the rate cut to increase the overall liquidity in the market, considering the macroeconomic factors.

USD Index

The Greenback was taking rounds near its one-month lows as US Unemployment data and Trade Balance reported poor figures. The US Dollar Index made the opening today near 97.31 levels and initiated the downward rally. Bears started taking control over the Buck after the release of lower-than-expected USD-specific data. The April Trade Balance recorded $-50.8 Billion over $-50.7 Billion forecasts. Both the Continuing Jobless Claims computed since May 24, and Initial Jobless Claims calculated since May 31 reported higher-than-estimated. Also, the Q1 Non-Farm Productivity came out 0.1% lower than the market expectation of 3.5%. Adding to the sour sentiment, Q1 Unit Labor Costs reported -1.6% in place of consensus estimates of -0.8%. The USD Index marked the day’s lowest point near 96.79 levels following such adverse US reports. The Index attempted to recover strength but failed to do so as Fed’s Kaplan mentioned his dovish stance for the economic outlook.


Mexican Peso pair stayed near its monthly high amid rising US tariff concerns over Mexican exports. Last day, the US Officials had set a meeting with the Mexican counterpart over the 5% tariffs imposed on all the exports of Mexico. US President tweeted that the meeting showed “not nearly enough” progress. Trump reiterated that the taxes would continue to increase by 5% every month, culminating to 25% in October this year. The President puts his demand to curb illegal immigration into the US territory as a solution to the eradicate tariffs.

USDMXN 60 Min 06 June 2019
USDMXN 60 Min 06 June 2019

Meantime, Mexican economists smell a near-by recession out of a probable debt crisis. Credit rating agency Fitch downgraded Mexico’s sovereign debt previous day. Moody’s also reduced their overall economic outlook to negative, adding further pressure to the Mexican Peso. Nevertheless, Mexican President Andres Manuel Lopez Obrador stood quite positive of getting into a deal with the US. The President prepares a list of US products and plans for retaliation against the United States.


The Euro pair started the day near the 1.1236 bottom levels. The pair remained close to the same opening levels throughout the Asian trading session. Following the release of German April MoM Factory Orders, the EUR/USD pair gradually took pickup. The German data came out near 0.3% over the market expectation of 0.1%. The pair shrugged to the in-line reported Eurozone Q1 QoQ Employment Change figures. However, the Euro pair reacted positively to the Eurozone Interest rate decision reporting 0.0% in-line with the estimates. The pair jumped from 1.1219 levels to 1.1272 levels at around 11:45 GMT. The EUR/USD pair made further upliftments amid weaker US Unemployment and trade data. The pair marked the day’s high near 1.1310 levels.

Not only the Turkish Lira – The Indian Rupee Hits All Time Low

This week the Indian Rupee crossed 70 for the first time in its history. India’s currency crossed the psychological level on Monday and traded as high as 70.80 on Wednesday. The Rupee is just one of several emerging market currencies to come under pressure in the wake of the Turkish Lira’s collapse. However, the Rupee may be vulnerable to further weakness regardless of the weakness of the Lira.

The Turkish Lira is now down about 35% since the beginning of the year. The Argentinian Peso has lost close to 37% of its value in 2018 after the country was forced to turn to the IMF in May. Other emerging market currencies losing ground are the Indonesian Rupee, the Philippine Peso, the Brazilian Real and the South African Rand.

However, not all emerging market currencies are losing ground. The Mexican Peso has gained ground in 2018, and most South East Asian and East Asian currencies are holding their value.

Almost all the countries that have seen their currencies come under pressure are those with wide, or widening, current account deficits. In India’s case, analysts have been worried about the deficit for some time, and these fears were confirmed when the commerce ministry announced on Tuesday that it had hit a five year high of $18 billion in July.

The current account deficit is growing due to rising oil prices and a surging USD, and FDI and foreign institutional investment flows are not high enough to offset the widening deficit. The rising oil price alone could see India’s oil import bill growing by $26 billion in 2018 and 2019, and is unfortunately likely to offset any export gains due to the weaker currency.

The central bank has also raised rates twice, in June and August, the first rate hikes in four years. It may hike rates further if the currency continues to weaken, though it will be cautious about doing so if economic growth slows.

India ratings and research have also just lowered its growth forecast for the year to 7.2%, from 7.4% sighting rising inflation due to oil import costs.

USD/INR Weekly Chart (Source:
USD/INR Weekly Chart (Source:

Going forward, the most important factors to watch will be the oil price and the strength of the USD. While developments in the domestic economy will play a part, they are likely to be outweighed by these external factors. Some analysts are forecasting the Rupee to reach between 72 and 73.55 by year-end, based on current fundamentals – but these can change rapidly.

If current fears over emerging market currencies ease, the Rupee will probably retrace to an extent. Short term support may come into play at 69.70, and if that doesn’t hold, the breakout level at 69 could be retested. It seems very unlikely that the currency would strengthen below that level without a substantial change in the economic environment. A likely trading range for the remainder of 2018 may be 69.70 to 72.

While the selloff of the Turkish Lira has played its part in the weakness we are seeing in the Rupee, fundamentals are equally to blame. The Rupee is not one of the currencies that is most influenced by emerging market sentiment and domestic factors rather than speculation play more of a role in the price.

Traders should, therefore, pay as much attention to oil prices and domestic developments as they do to sentiment or technical levels.

Markets Summer Lull Can Be Broken by Major Central Banks, Emerging Markets Currencies Under Pressure

The currencies of developed countries are moving within a narrow range at the beginning of the eventful week. The dollar index is around the mark of 94.50 and has been trading for two months in a range of slightly over 1% around this level. This quiet trading environment can be broken this week after the announcement of the decisions took by the Bank of Japan, the Fed, and the Bank of England, as well as the publication of the U.S. employment data.

Developed markets currencies are experiencing a period of low volatility after the dollar growth period from the end of April to the end of May. The closest market focus is how the Bank of Japan adjusts its policy. More hawkish tone can push down the Asian markets at a time when they are vulnerable amid the fears of trade wars.

With the meetings of the largest central banks and important statistics, the week ahead is able to open a period of increased volatility after a long period of a summer lull. Earlier, the Fed’s head made it clear that the U.S. central bank is set to tighten its policy. Market participants will closely monitor if the Fed is set to raise its rates in September while remaining committed to the 4th increase in 2018.

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The Fed’s hawkish rhetoric can increase the difference in the dynamics of developing countries’ currencies. Unlike the major world currencies, in the EM there has been a noticeable differentiation in recent weeks.

The Russian rubble enjoys the continuation of high oil prices period. The Mexican peso gains after the elections last month and on the expectations of the profitable negotiations on NAFTA.

At the same time, the Chinese yuan has been falling for the recent two months at its highest rate in many years on easing the PBC policy and on fears about the consequences of trade wars with the United States. The Turkish lira declined to all-time lows due to the threat of the U.S. sanctions and after the Turkish CB had kept the rates against a widely expected increase last week, which was perceived as a loss of independence of the local regulator. The Argentine peso is also under attack, despite the assistance from the IMF to the country. The Indian rupee is close to the historical minimum to the dollar, in spite of the strong growth of the economy.

The dividing line for the currencies of developing countries became the balance-of-payments factor. Turkey, India, and Argentina have a significant deficit and are dependent on the inflows of capital from outside. China formally has a surplus, however, the economy of the country’s regions depends on outward investment, requiring favorable investor relations.

This article was written by FxPro