EM Currencies to Invest in 2019

We have come to the second month of 2019 and it’s time to take a deep breath after the crazy run of the year, evaluate what has already happened and made some precisions on the upcoming months.

Last year appeared to be struggling for the emerging market currencies. And there were several reasons for that. Firstly, it was the aggressive pace of rate hikes by the Fed. Secondly, the escalation of the US-China trade war and slowdown in the global economic growth. Thirdly, the global risk-off sentiment. Moreover, we all remember crises in Turkey and Argentina that made traders more cautious about the emerging markets.

2019 seems shinier for the EMs. Reasons are hidden in the relief of the Fed monetary policy and the possibility of the deal between the US and China. As a result, it seems like bears started easing their grip. Does it mean that the time to invest in developing economies has come?

Where to invest and why?

Brazilian Real

The Brazilian currency may become one of the most attractive ones in 2019.

Last year, the Brazilian market was under the pressure of the global market sentiment and the presidential elections. However, all these factors seem to start vanishing in 2019. There are no doubts the Federal Reserve will ease its monetary policy. Trade disputes between the US and China have started improving. There are no proves that they won’t escalate in the future again but the melting confrontation is already a good sign. Also, experts see a policy of Mr. Bolsonaro (elected in 2018) as a booster for the Brazilian economy. The pension reform is anticipated to become one of the main drivers. Experts believe that the policy of the pro-business president could contribute to the faster GDP growth and investment flows in Brazil.

Mexican Peso

Mexica has a similar situation to Brazil. Last year the country elected a new president. This year will show whether the new political force will encourage the economic growth or pull it down. Uncertainties around the policy of the new president will add pressure on the currency, but as soon as the new government confirms its reliability, investment flows will come to the country.

Turkish lira

2018 appeared to be the hard year for Turkey and its economy. Disputes with the US, problems with the monetary policy made the Turkish lira depreciate by around 30%.

Up to now, economic data are not encouraging. However, there is a chance. On its last meeting, the central bank decreased its 2019 inflation forecast by 0.6% to 14.6%. Moreover, the central bank promised to not cut the interest rate until there is an improvement in the inflation level.

It’s early to talk about the strong recovery of the Turkish currency, but it’s worth following the economic releases.

What investments to avoid?

Although most of the factors signal the recovery of the EMs, it doesn’t mean that all currencies will appreciate. Risks for some currencies still exist.

Possible stones for the South African Rand.

The first thing that may affect the currency is the continuation of the slowdown in the Chinese growth. China is the close partner of South Africa. As a result, the suffering Chinese economy may put downward pressure on the South African one.

The second factor is the possible credit downgrade. And this factor is highly connected with another one – May elections. Elections always create high volatility in the domestic market. Moreover, the results of the elections will affect the economy in general. The pace the elected government committed to will affect the future of the country.
Analysts say that it’s unlikely Moody’s will cut the ratings before the elections but the further slowdown of the South African economy and the risks of the further fiscal slippage may push the agency to do that to the end of the year.

Making a conclusion, we can say that there are good opportunities for emerging markets to recover. However, not all EM currencies have the same chances to appreciate. The further direction of them will depend on economic releases, political news, and the market sentiment.

Forex Annual Market Recap – 2018

Volatility returned to the currency markets in 2018. The prior year did not provide investors with fear and uncertainty the way 2018 did. The dollar was the main catalyst for changes in market sentiment. Exchange rates were relatively stable until the spring of 2018 and then it became clear that US yields would rise, sending the greenback higher. There were also some severe movements in emerging currencies. The Chinese Yuan weakened substantially along with the Turkish Lira. Moving forward, there are several factors investors should focus on. The ECB will play a key role in 2018, along with political events in both the UK and US.

The Strength in the Greenback

The dollar returned as the king of the currencies in the spring of 2018.  A new Federal Reserve chair began his tenure and quickly installed the belief that the Fed would continue to raise rates multiple times in 2018 and 2019. This led to a rise in US yields pushing the yield differential between major counterparts in favor of the greenback.

Fed Chair Powell’s continued to be hawkish throughout the year, and by October of 2018 the average Fed forecast confirmed the central banks’ intention to increase interest rates three more times in 2019, with another rate hike scheduled for December.  Fed chair Powell in the fall of 2018 said that monetary policy was still accommodative, and there was further to go before the Fed funds rate hit neutrality.  The hawkish tone of the Fed was repeated during the week before Christmas. The fed increased the Fed fund rates by 25-basis points and signaled some softening by forecasting an increase in interest rates by 50-basis points in 2019 instead of the 75-basis point forecast increase they had made during the fall. This was at odds with the market which forecast rates to fall in 2019.

The Dollar versus the Euro which is the most liquid global currency pair has a peak to trough move of nearly 10%. The increase in the value of the greenback might be curtailed by a less hawkish fed. The markets are signaling that rates have reached restrictive levels which might reduce dollar volatility moving forward.



One of the issues is the concept of neutrality. Coming out of the Great Financial Crisis, the Fed wanted to increase interest rates to the point where they had enough bullets to reduce rates should a recession occur. If the Fed left rates as very accommodative levels, then there would be no stimulus to help the economy if it began to falter.

The Fed also needed to unwind its asset purchases. The period of quantitative easing had ended, and the Fed began to wind down its portfolio. This strategy was put in place before President Trump was elected, and there has been continuity between recent Fed Chairs, during the last 10-years. The President has been ultra-critical of the Fed decision to increase rates during 2018. If this occurred in nearly any other country investors would have hammered the currency. Yields would soar as investors extract a steep price for criticism of the central bank.

Brexit Hampers Sterling


The pound was a big loser in 2018, as the issue related to Brexit started to heat up. The decline in the pound coincided with strength in the greenback which began in the spring of 2018. The GBP/USD had peaked to trough range of 13%.

During the fall of 2018 reports that the EU and the UK were having difficulty reaching an agreement started to generate headwinds for the GBP. Despite mixed data, some of which showed strength, the Bank of England was hamstrung by the Brexit issues. Ahead of the Christmas break, Prime Minister Terresa May reached an agreement with the EC but was told this would be the last agreement and there was no flexibility.  Unfortunately, PM May was unable to get the Brexit bill passed by the parliament. In fact, her own party the Tories held a no-confidence vote which May was able to survive. This will be revisited in early 2019, as the Brexit saga continues.

The Chinese Yuan Tumbles

The Chinese Yuan was one of the biggest movers during 2018. The peak to trough range was nearly 11.5%.  The currency began to weaken during the spring of 2018 as trade issue between the US and China began to heat up. There were multiple fits and starts and as of the year-end, the rhetoric between President Trump and President Xi continues. Initially, investors thought the weakening of the Chinese currency was a function of the People’s Bank of China’s efforts to offset softening exports with a weaker currency. This would make Chinese exports more attractive. During the latter half of 2018, Chinese economic data began to soften which was foreshadowed by the weakening currency. As of year, end Chinese PMI data moved into contraction territory which points to further contraction in the Chinese economy.


2019 Forecast

While 2018 was the year of the dollar, there are many issues that can change the narrative in 2019.  The Fed will likely change its tune and reduce the number of rate hikes to 1, instead of 2. US yields already reflect this scenario and should help reduce the value of the dollar. The global economy could continue to weaken which will weigh on the yuan and could further hurt the Chinese currency.

The markets have also failed to discount the volatility associated with political unrest in the United States. President Trump could be impeached which is likely, but nobody believes, the Senate will convict him. If this becomes the case, the markets could become very volatile and could generate significantly headwinds for the dollar. US yields, in this case, would decline instead of rising, making the dollar less attractive. At the same time, investors would be looking for a safe-haven currency which would likely be the yen and the Swiss Franc. Even if political unrest does not occur, a potential recession in the US would weigh on the greenback.

How to Trade the Trade War?

The developing trade war between the US and China has created turmoil in emerging markets, most noticeably in the form of a sell-off of the Chinese stock market and currency.

Trading the trade war is not very straightforward. Firstly, we really don’t know how it will end. It will probably be resolved eventually, but the timing will make a big difference.

The longer it lasts the more damage will be done, and that will have longer-term implications. A longer trade war may also trigger a domino effect through other parts of the global economy. If the trade war was to be resolved fairly soon, prices would normalize quite quickly.

One thing to remember is that it appears Trump is happy to keep the pressure on as long as the US stock indices continue making new highs. If volatility in the US stock market picks up, as it is now, he may be forced to soften his stance.

Several markets related to the trade war are currently very oversold, and should the impasse be resolved, sharp reversals are possible in some of these markets.

Traders should be careful of using the same approach across all emerging markets. Some markets have been caught up in the trade war, while others have deep-seated underlying problems of their own.


Tensions over trade began to grow between the US and China between January and May this year. In May the US began to effectively impose tariffs on certain imports from China by terminating tariff exemptions. More products were added in June and more gain in September.

The Chinese Renminbi has fallen 10% since March as the trade war has escalated. The Shanghai composite has meanwhile lost as much as 25% since the beginning of 2018.

USD/CNH Weekly Chart
USD/CNH Weekly Chart

The slide in the renminbi has to a certain extent offset the added tariffs – the weaker currency means US importers are paying slightly less before tariffs are added.

It’s worth noting that the slide in the value of the Renminbi has slowed significantly since July despite the additional tariffs with a double top potentially forming. It is possible that the Chinese Central Bank is supporting the currency to prevent capital flight, as they experienced in 2015/2016.

Not many forex brokers offer to trade in the Renminbi, but a few do. If you are looking to trade the Chinese currency you will be trading the Offshore Renminbi or CNH. The CNY is the Onshore Renminbi which us restricted and managed by the Central Bank.


Turkey has several problems. Firstly, a series of populist policy decisions by the president eroded investor confidence, triggering a selloff of the already structurally weak Lira. This turned into a vicious cycle as much of the country’s government and corporate debt is USD denominated, and effectively rises as the Lira weakens. On top of this precarious situation, the US then imposed new import tariffs on Turkish goods.

USD/TRY Weekly Chart
USD/TRY Weekly Chart

The Turkish Lira had lost almost 46% of its value by the middle of August and is now consolidating in what could turn out to be either a continuation or reversal pattern. The benchmark equity index, the BIST100, fell as much as 30%, though it has recovered some of those losses.

The Turkish economy is one of the most vulnerable in the world, and further emerging market volatility could very easily lead to further losses for both the currency and stock market. Investors will probably want to see policy changes before a sustained recovery begins.


Argentina had to turn to the IMF to help prop up its balance sheet in May, and this loan was recently increased to $57 billion. The Peso reached an all-time high of 41.47 against the USD, having traded at 18 in January. Last week, the Central Bank raised interest rates to 65%, indicating how serious the crisis is.

The benchmark stock index recently tested the all-time high recorded in January – though this has more to do with the inflationary effect of a weak currency than with earnings.

Argentina is one of the weakest markets and will be vulnerable to further fallout from the trade war. Traders watching the stock index should focus on the technical picture rather than trying to weigh up valuations and a fluctuating currency.

South Africa

South Africa’s economy has been under pressure for several years as a result of a scandal-ridden government. In the second quarter, the country officially dipped into a recession.

USD/ZAR Weekly Chart
USD/ZAR Weekly Chart

South Africa’s currency, the Rand, is structurally weak and was also rated by Bloomberg as one of the most vulnerable in the world. The Top40 stock index has made little ground since 2014 as political uncertainty led to an investor exodus.

A certain degree of political stability has been restored and South Africa is beginning to look more like a potential turn around play. South Africa is also a major commodity exporter and highly correlated with China’s economy. If the trade relationship between China and the US is resolved, SA may be a market to watch on the upside.


Commodities, especially base metals like copper and iron ore are another potential play based on how things develop. If the standoff is prolonged its likely to have an ongoing impact on China’s domestic economy, which includes massive infrastructure projects. Besides metals prices, traders can also look to Australia’s large commodity exporters.

Global Tech Stocks

The original FAANG stocks (Facebook, Apple, Amazon, Netflix, and Google) have a few problems of their own. Not only are they priced for strong growth going forward, but the likes of Facebook and Google are facing growing scrutiny over issues related to users’ personal data.

The trade war has now brought a new dynamic to the sector. Chinese tech giants Alibaba and TenCent are both under pressure due to the trade war. China is also very important in Apple’s life, both as a supplier and as a customer. Ongoing pressure on China’s economy will eventually begin to impact Apple.


As you can see there are quite a few instruments that traders can use to play the trade war, either in the case of an escalation, or continuation or in the case that it is resolved. When choosing a forex broker it’s a good idea to look at the range of instruments offered so that you have the option of expressing trades through several instruments.

As was mentioned at the beginning, it’s impossible to predict how all of this will play out. Traders should, therefore, trade opportunistically and keep an open mind.

What to Expect From the Fed Meeting Today?

The US Federal Reserve will be announcing their decision on interest rates and releasing the minutes of the FOMC meeting today at 18h00 GMT tomorrow. A 25-basis point hike is expected by economists and investors, with another hike in December also widely expected.

Given that the rate decision is taken as a given, all eyes will be on the wording that accompanies the decision and, on the Fed’s updated Summary of Economic Projections which will also be released. In particular, the market will be looking at whether the term accommodative will be removed or softened within the statement.

Jerome Powell is widely expected to say that risks to the economic environment are balanced, but investors will also be interested to see whether he highlights trade policy (i.e. tariffs) as a major risk to the US economy.

In the absence of any unexpected concerns regarding risks, GDP growth or inflation, the market will be looking at the Fed’s projections for the economy and rates out to 2021. This will be the first time the Fed will extend its projected rate charts to 2021, where many believe rates will stop rising and level off.

Overall, the rate announcement is likely to be a non-event and investors will look to other economic data releases, the escalating trade war, and emerging markets for direction.

The US Dollar

US Dollar has weakened since the previous meeting and sentiment remains weak around the greenback, despite 10-year treasury yields hitting their highest levels since 2011. With the market already discounting a 25-basis point hike, the Dollar is only likely to strengthen if the outlook is more hawkish than expected.

There is a very small chance (2%) of a 50bps hike but considering that another hike in December is also expected by most market watchers, even this may not be enough to boost the Dollar.

The US Dollar index (below) has breached support going back to May, and it will take a very hawkish statement for it to regain this support level at 94.75. While all of this appears to point to further weakness, this too may be contained by technical levels against other major currencies.

US Dollar Index Daily Chart
US Dollar Index Daily Chart

The EUR/USD has bullish momentum but will encounter resistance between 1.181 and 1.19 – in fact it is already struggling below 1.18. If this area of resistance is convincingly breached, we may see further USD weakness.

Most of the emerging market currencies that have been under pressure in 2018 have consolidated over the past month. In general, risk assets are back in favor, and emerging currencies have benefited from this. However, they do remain vulnerable, and any volatility that follows the Fed decision would probably lead to further weakness.

In all, the rate decision is most likely to turn out to be a non-event. The market is more likely to focus on the longer-term fallout from the trade war with China, something that will impact emerging markets and China, more than the USD itself.

Exotic vs Major & Minor Currencies

While the currency pairs we hear about most often are the major and minor pairs, there are actually far more exotic currency pairs to trade. In this introduction, we will define the types of currency pairs and cover some of the basics you’ll need to know before you begin trading the ‘exotics’.

Major and Minor Currency Pairs

Firstly, we should define major and minor currency pairs. The following are regarded as major currencies:

  • US Dollar (USD)
  • Euro (EUR)
  • Japanese Yen (JPY)
  • British Pound (GBP)
  • Swiss Franc (CHF)
  • Canadian Dollar (CAD)
  • Australian Dollar (AUD)
  • New Zealand Dollar (NZD)

Major currency pairs refer to any pair containing one of these currencies and the US Dollar, so while there are eight major currencies, there are only seven major currency

An important issue in the currency market is liquidity – i.e. the amount of any currency being bought or sold at any time. The most liquid currency pairs tend to have natural supply and demand from exporters and importers in addition to the supply and demand generated by speculators and investors. Since all the countries listed above have substantial trading relationships with the US, constant liquidity is provided by exporters and importers.

Minor currency pairs include any two of the major currencies apart from the USD. Some of these pairs, including GBP/EUR and AUD/JPY represent pairs of countries with active

trade relationships, providing significant liquidity. Others, like CHF/JPY and EUR/JPY, have less active natural supply and demand.

Currency Liquidity

Before we move on to exotic currencies it’s important to understand that there are two major forces driving the exchange rate between two currencies; natural supply and demand, and the relationship between those two currencies and other currencies – most notably the USD. If you exchange GBP for EUR, importers, and exporters in both the UK and Europe will be buying and selling both currencies, providing an active market. On the other hand, if you exchange GBP for NZD, there will be fewer importers, and exporters active in the market – the quotes will more likely be a combination of the GBPUSD rate and the USDNZD rate. With currencies that are even less liquid, exchanging one currency for another will inevitably involve exchanging the first currency for USD and then exchanging USD for the second currency.

Most forex brokers offer clients forex trading either in the direct currency market or via CFDs (contracts for difference). Either way, the spreads they offer depend on the liquidity of the underlying currency market. Even though you may see a pair quoted as just two currencies, for the trades to take place in the underlying market, at some point an extra leg may have to be executed by a market maker.

What are exotic currencies?

Exotic currencies are any currencies not mentioned already. Some like the Hong Kong Dollar (HKD) and Norwegian Krone (NOK) are actually very liquid, some like the Mexican Peso (MXN) and Thai Baht (THB) are fairly liquid, and others like the Malawian Kwacha (MWK) and Laos Kip (LAK) have very little liquidity.

Exotic pairs are those that include one major currency and one exotic currency. While there are over 150 countries that could be classified as developing nations, trading in exotic currencies is focussed on 18 currencies. Admiral Markets UK Ltd, a prominent forex and CFD broker, for instance, lists 19 exotic FX currency pairs including 10 exotic currencies. There are plenty of other exotic currencies, but in most cases, brokers will only offer those that their clients demand.

The following are the most widely traded exotic currencies:

  • Norwegian Krone
  • Polish Zloty
  • Czech Koruna
  • Hungarian Forint
  • Russian Ruble
  • Turkish Lira
  • Chinese Yuan Renminbi
  • Singaporean Dollar
  • Hong Kong Dollar
  • South Korean Won
  • Thai Baht
  • Malay Ringgit
  • Indonesian Rupiah
  • Indian Rupee
  • Mexican Peso
  • Brazilian Real
  • South African Rand

With any broker, the spreads being offered for a currency pair will reflect the underlying liquidity for that pair. Admiral Markets, for instance, offers spreads as low as 0.1 pip for the EURUSD pair (the most liquid pair in the world) to 5 pips for CADCHF and 10 pips for the USDCNH. For even less liquid currencies, the spreads can be much wider, in some cases reaching 800 pips.

Which Currencies Should You Trade Exotic Currencies Against?

An exotic currency will usually have better liquidity if it is traded against the currency of a major trading partner. The Turkish Lira is therefore usually traded against the Euro, the HKD against the USD or Chinese Renminbi and Mexican Peso against the US Dollar. You would struggle to find a broker offering a Malawian Kwacha/Swiss Franc pair, but even if you did, the spreads would be very wide. In most cases, exotic currencies from countries in or close to Europe are traded against the Euro, and others are traded against the USD.

Pros and Cons of trading Exotic Currencies

The currencies of developing nations are often volatile and prone to trend strongly. Some countries with large current account deficits have structurally weak currencies that have weekend consistently for decades, while others have steadily strengthened over time.

This means there are certainly opportunities for forex traders to profit. The downside is that trading costs can be high and are some currencies are prone to large, unexpected moves when government policies are changed without warning.

For the most part, traders need to have a longer-term view when trading exotic currencies than they would with major currencies. The less liquid a currency is, the longer the time horizon should be. Some, like the Norwegian Krone and Singapore Dollar, are very liquid and can be treated like major currencies. However, others, like the South African Rand and Turkish Lira are not suitable for intraday trading and are only suitable for medium-term trading under unique circumstances. In most cases, exotic currencies require time horizons of weeks to months, unless a very unique opportunity presents itself.

Secondly, traders must familiarise themselves with the typical patterns for a particular currency before trading it. Each currency has its own unique personality and there are usually good and bad times of the day and week to trade them.


While trading exotic currencies are less straightforward than trading major and minor pairs, they do offer very profitable opportunities. Every few years there is usually an emerging market currency crisis which results in some currencies moving as much as 20 to 30%.

These situations offer forex traders opportunities they will seldom see in major pairs. It is therefore worth learning more about these currencies and adding another tool to your trading arsenal.

Risk disclosure: Forex and CFD trading carries a high level of risk that is not suitable for all investors. Presented information is not an offer, recommendation or solicitation to buy or sell. Before making any investment decisions, you should seek advice from an independent financial advisor to ensure you understand the risks involved. Read more at admiralmarkets.com.

Global Stocks Mixed as US-China Trade War Intensifies, EM Central Banks Seem to Have Repelled the Attack

Cautiousness returned to the markets at the beginning of the new week on the introduction of bilateral tariffs between the U.S. and China, as well as expectations of the Fed rates rise. It should also be noted that the tightening of the Fed’s policy forces the central banks of smaller countries to tighten their policies as well. The Central Banks of developing countries (Argentina, Turkey, Russia, Philippines) actively raised rates or unfolded their rhetoric towards the tightening in August and September in response to a very serious outflow of capital and the fall of national currencies.

Despite the similarity of form, the consequences for countries and currencies will vary drastically. 

Policy tightening in the United States is a response to increased inflationary pressures because of a strong economic growth and one of the tightest labor market conditions for decades. Measured increases in rates do not hinder the economic growth and even motivate the demand to some extent, as consumers rush to credit at low rates, realizing that soon the lending will rise after the tightening from the Fed.

In emerging markets, it is often a different story. The central banks of Argentina and Turkey have increased the rates very sharply to stop the free fall of national currencies and frightening volatility of the markets. Now, this sharp policy tightening may become a serious strangling for growth in the coming months. Earlier last month, the South African rand sharply decreased after reports of an unexpected recession in the country.

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It will not be surprising if in the coming months we will be more likely to receive reports about slowing growths of developing countries or recessions there (the Central Bank of Russia has already warned about such possibility).

The central banks of developing countries will probably have to fight back the attacks like the one we saw in August and September more than once in the coming months. In doing so, they will have to balance between the policy tightening and growth to maintain the attractiveness of the currency for external investors and avoid the economy knockdown.

This article was written by FxPro

Australian Dollar Jumps on Sharp Rise in Employment, No Surprises from the BoE and ECB, TRY Jumps as CBRT Increases Rates

The Bank of England and the European Central Bank did not deliver any surprising news on Thursday, both banks kept interest rates unchanged. As expected, the BoE left its rate on 0.75%, the ECB kept its record low rates at 0.00%.

The Turkish Lira strengthens 2.87% versus the US dollar after the Central Bank of Turkey increased its interest rates from 17.75% to 24%.

Economic reports and the Fed were highlighted on Wednesday with volatility spread across the board from commodities to stocks to financials. The U.S. session featured reports on producer inflation and crude oil inventories as well as a speech from a Fed official and the central bank take on U.S. manufacturing. Early Thursday, investors are reacting to stronger-than-expected Australian employment data.

U.S. Economic Reports

According to the Labor Department, U.S. producer prices unexpectedly fell in August with the weakness led by declines in the prices of food and a range of trade services. The decline could have been worse if not for an increase in the cost of energy products.

The Producer Price Index (PPI) for final demand slipped 0.1 percent last month after being unchanged in July. August’s decline was the first in 1-1/2 years. Economists were looking for an increase of 0.2 percent in August.

In the 12 months through August, the PPI rose 2.8 percent, down from July’s 3.3 percent increase. Economists had forecast a 3.2 percent year-on-year reading.

Core PPI edged up 0.1 percent in August. In the 12 months through August, the core PPI increased 2.9 percent after rising 2.8 percent in July.

U.S. Energy Information Administration Inventories Report

Crude oil prices rose after an EIA report showed U.S. crude inventories fell 5.3 million barrels in the week to September 7 to 396.2 million barrels, the lowest since February 2015 and about 3 percent below the five-year average for this time of year.

Additionally, U.S. crude oil production fell by 100,000 bpd, to 10.9 million bpd, as the industry faces pipeline capacity constraints.

Gasoline stocks rose 1.3 million barrels, while distillate stockpiles, climbed by 6.2 million barrels, the EIA data showed.

Fed Beige Book

According to the Federal Reserve’s latest Beige Book released late Wednesday, three of the Fed’s 12 districts – St. Louis, Philadelphia and Kansas City – reported weaker growth in August. Additionally, the central bank said that while the overall U.S. economy expanded at a “moderate pace,” trade concerns and a lack of workers delayed projects. There were also “some signs of deliberation” in prices of final goods and services.

Fed Governor Lael Brainard

Fed Governor Lael Brainard said in a speech on Wednesday that the Federal Reserve likely will continue gradual interest rate increases but will accelerate the pace if signs that financial imbalances continue to build.

“While the information available to us today suggests that a gradual path is appropriate, we would not hesitate to act decisively if circumstances were to change,” Brainard said, according to prepared remarks. “If, for example, underlying inflation were to move abruptly and unexpectedly higher, it might be appropriate to depart from the gradual path.”

Australian Employment Report

Australia’s employment rose a strong 44.0K in August, more than reversing the modest 4.3K drop in July. Over the past three months, employment has risen an average of 33K per month. The strength was due to a sharp rise in full-time jobs (33.7K), while part-time jobs also rose (10.2K). The Unemployment Rate was stable at 5.3 percent, while the participation rate rose 65.7 percent.

Three Reasons for Rebounding Indices in Developing Countries

Global stocks trade mostly higher on Thursday morning on new trade talks between Beijing and Washington. The global positive momentum affects also the developing countries share market which after a sharp decline rebound due to three main reasons.

Positive expectations from trade negotiations

Asian markets are adding after reaching 14-month lows the day before. Positive markets are supported by the reports about China’s invitation to trade negotiations. Previous negotiations did not bring any results and led to a tightening of the rhetoric and tariff expansion. However, the positive markets are fuelled by the sentiment that President Trump’s administration will be slightly more inclined to reach an agreement, having faced a public coalition of 85 industrial groups in the US that oppose the trade tariffs.

Short-term oversold indices

However, an equally important factor is the “fatigue” of the market after a prolonged sale. MSCI for Asia ex-Japan adds 0.5% this morning after touching the oversold area on RSI. Often, the exit from this area increases the craving for profit by speculators, oriented to technical factors that could support the market in the next few days. Futures on Heng Seng 50 add 1.1% per day. After a long sale, the fixation of profit from the weakening can develop a rebound up to the rest of this week, although it is not yet possible to talk about a fundamental reversal to the growth for EM markets.

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Weak US inflation data

In addition, weak U.S. PPI data have a moderately positive impact on the markets. The release below expectations has lowered the fears that the Fed will have to go ahead with raising the rates to suppress inflationary risks having pressed on the dollar and supported the demand for risks.

All of the factors above (positive expectations from trade negotiations, short-term oversold indices and weak statistics on inflation in the USA) are not capable to form a sharp rebound separately, but their combination helps the markets to form the ground.

This article was written by FxPro

Strong Data Supports U.S. Markets and Limits EM Decline, Oil Rises on Hurricane Florence’s Threat

Stocks of the Emerging Markets remain under pressure on Wednesday morning, with positive sentiments prevailing in American markets following strong macroeconomic statistics. MSCI for Asia-Pacific region has been updating its lows since July 2017, losing 0.5% on Wednesday. Hong Kong’s Hang Seng loses 0.2% but is also in the area of 14-month lows. Both of these indices have entered the oversold zone on RSI, which reflects a strong impulse for the decline, but also requires attention to a possible rebound.

However, bears seem to have an upper hand for now on EM against a verbal skirmish between China and the United States regarding the trade. Trump noted that he had a tough stance against China, and Beijing told it would request WTO for sanctions of $7 bln. per year against the U.S. due to non-compliance with the trade negotiation procedure.

On the contrast, the U.S. markets were gaining on Tuesday, relying on strong statistics. S&P500 added 0.3%, having recovered after the data from earlier intraday decline. The Small business optimism index has reached a new high in its 45-year history following the most intensive plans to increase jobs, expand investments and increase stocks. Separately, according to JOLTS report, the number of open positions in July reached a record of 6.94 million, which is greater than the number of unemployed ones that are 6.2 million, also it is noted that the number of those who voluntarily change their work grows. These are the signs of labor market strength, foretelling acceleration of the salary growth that we saw at the end of the last week in Payrolls report in August.

The enthusiasm around the confident growth of the U.S. economy creates expectations of higher rates from the Fed. The markets put 80% chance of the rate rising in September and December versus 71% a week earlier and 60% a month ago. However, this seems to be insufficient for the growth of the dollar. The EM currencies put on pause their decline on the assumptions that strong statistics in the United States will support global growth rates.

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The dollar index has been around the 95.0 level since the beginning of the month. EURUSD has retreated this morning to 1.1580 after a failed 1.16 test yesterday, GBPUSD has returned under 1.30.

Strong U.S. data and the news that Hurricane Florence could become the strongest in history, hurting oil production in the U.S., caused a spike in oil quotes. Brent rose to $79, the level, above which oil has not been sustained since May.

This article was written by FxPro

Today’s Gold Rush is Looking Rather Green

As the US economy grows at the fastest pace in decades, unemployment has dropped to the lowest level since the beginning of the millennium. With growth forecast to carry on throughout next year, fuelled to some extent by a fiscal reform introduced by President Trump, the Federal Reserve has signaled that several more interest rate hikes are on the cards. Some observers expect up to 6 before the end of 2019, despite somewhat disappointing real wage growth and political noise from the US President indicating discomfort with the Fed’s tightening of its monetary policy.

In the meantime, the rest of the world lags

The BoE, the ECB and the BoJ still have some way to go before we can talk about an alignment of monetary policies with their US counterpart. But the divergence in central banks’ policies doesn’t completely explain the dollar’s allure. The greenback is becoming the safe haven of choice for many investors. With 10-year treasury yields hovering just below 3%, many no longer look to gold as the first choice of refuge during times of uncertainty. With a global trade war looming, each escalation in rhetoric, from each of the sides, has triggered a rush to the US currency. Even though the current administration in Washington would prefer a weaker dollar, it seems that, at least for now, the appetite for the greenback will remain high every time new tariffs (or threats) on imports from China, Canada or the EU are announced.

This is a particularly sensitive situation for emerging economies running substantial current account deficits and large exposure to debt denominated in the US currency. A bullish dollar means larger debt burdens and higher inflation, which in turn trigger further selling of local assets and have a compounding effect on the devaluation of local currencies. It’s a vicious circle and escaping can be difficult, especially when politics get in the way.

A scenario perfectly illustrated by the current state of the affairs in Turkey, where President Erdogan has somewhat restricted the ability of its central bank to manage the situation. Elected on a populist program, Mr. Erdogan has been interfering with the Turkish central bank’s attempts to substantially raise interest rates to try halting the devaluation of the Lira. Forecasts in the short to mid-term look complex for Turkey and its currency. Even adopting more orthodox damage control methods may no longer be sufficient. Looking at Argentina will probably send shivers down the spines of officials of other emerging economies too. The South American country raised interest rates to 60 percent (the highest in the world) and agreed to a $50 billion rescue loan from the IMF. However, these steps were insufficient to the eyes of investors and, as the Peso piles up losses closing on 50 percent to the Dollar, so far this year, there are growing concerns that the Latin American country may be close to defaulting on its large public debt.

These concerns will of course further exacerbate the situation and increase the chances of contagion to other emerging economies like India, South Africa, Indonesia or Brazil. It is worth noting that not all emerging economies present vulnerable underlying conditions (running large current account deficits, for example) but the market smells blood and some investors may be tempted to pull out of EM economies altogether. On the other hand, it is also possible that as summer comes to an end and liquidity increases, should global trade tensions dissipate, dollar bulls won’t be so bold. Under these more favorable conditions support may be found for EM currencies, especially the ones with solid underlying fundamentals, proving the more pessimistic scenarios wrong.

This article was written by Ricardo Evangelista Senior Analyst at ActivTrades

Are Precious Metals Due for a Relief Rally?

The Macro Perspective

Precious metals have exhibited broad weakness in the past six months, seemingly contrary to what market conditions might suggest. In the midst of trade wars and Emerging Markets worries, they should – in theory at least – have performed better. But can we identify any fundamental reasons for that? Let’s take a step back and analyze gold’s price action from the global financial crisis onwards.
Gold Weekly Chart
Gold Weekly Chart

From around $600 in 2007, gold went on a parabolic rise to a peak of over $1900 in 2011, reflecting the worsening global economic conditions. Precious metals were one of the main “go-to” safe haven assets, and as such, they outperformed most other asset classes. Interest rates were slashed and bond yields fell dramatically, while equities found some support after the initial drop in 2008. However, that parabolic rise was never going to be sustainable, and so a big drop started in mid-2011 for both metals. Silver, in particular, has now lost over 70% of its value from the peak, in a spectacular sustained drop.

What are the potential reasons for the precious metals moves?

  • The US Dollar has seen some strength since February 2018, with the DXY index, in particular, bouncing over 8% from the lows. Precious metals have always had a negative correlation with the Dollar (at least in the short term), and this has potentially been a reason for their weakness in 2018. Having said that, it’s worth noting that the Dollar weakened substantially in 2017 but precious metals didn’t manage to rally at all during that period.
  • Global inflation has been steadily rising towards the widely-adopted 2% YoY target. The US and Eurozone are now at the target, while the UK has been well above 2% for a fair amount of time already. As a result, the Fed has been tightening rates for the past two years, and even the Bank of England hiked twice – despite the ongoing Brexit fears. On the other hand, the ECB hasn’t hiked yet but is expected to do so in mid-2019. While inflation is rising, so are rates, and it’s a well-known fact that PMs are sensitive to change in real rates (interest rate minus inflation). Real rates have in fact remained relatively constant at historically low levels, so effectively the argument that rising rates have damaged PMs doesn’t necessarily stand.
  • Supply and demand for gold and silver have been broadly constant over the past years, with gold, in particular, is extremely stable. Silver, being an industrial metal, has seen some fluctuation due to changing demand and advance in technology (for example, miniaturization). However, the advance in technology also means that there are now more devices than ever which use silver, and furthermore, its use in areas such as photovoltaics and medicine is constantly growing. So, one could say that natural supply and demand (i.e. non-speculative) has been relatively constant.
  • Global geopolitical events have been a source of volatility is most asset classes. Events such as the US-China trade wars, Emerging Markets chaos (Venezuela, Turkey, and Argentina to name a few) and the ongoing Middle-East situation are valid reasons for flight-to-safety flows to PMs, but this has not materialized. In fact, actions such as Turkey’s decision to sell gold in order to support the Lira have been greeted as price negative. But is this true? When a country is in crisis, its first line of defense is often gold, with its steady value and liquid market. If gold was not a useful and valuable asset, surely it would be one of the last tools a country would use to defend itself. It’s probably safe to say that global geopolitical dangers are not the reason for PM weakness, in fact, they should theoretically have provided support.
  • Money supply is directly linked to the price of PMs, given their finite supply and difficulty in extraction from the ground. The Fed’s and ECB’s slow reversal of their quantitative easing programs will reduce supply, but that’s just one part of the equation. The constant generation of deficits by all major western economies (with the US leading the way at nearly $1trn annually), more than counterbalances this effect and causes money & credit supply to continuously increase globally.
  • Bitcoin and other crypto-currencies have been hailed as precious metal “replacements” when it comes to finding assets that can be used as a store of value. Their convenience and lack of storage need make them worthy alternatives for sure, and as such, they have probably been adopted by many. On the other hand, they remain assets with practically no intrinsic value – they are simply digital assets that have been manufactured out of thin air, based on a specific computer code. This fact bears many dangers and has been a constant stumbling block for skeptics.
  • Speculative selling has been a much-heated debate when it comes to precious metals. Whenever gold and silver have tried to overcome major technical levels (such as the 200DMA in silver), they have been met with violent selling in the futures market, with no other obvious prevailing reason. The moves have been sudden, relentless, and very effective. These speculative selling flows have seemingly been the main reason for gold and silver weakness over the past few years.
Gold-Silver Spread 1M
Gold-Silver Spread 1M

So, what’s the possible macro direction going forward? Well, even though PMs have been particularly weak in the past few years, the reasons for that move are not totally clear. Fundamentals suggest that they are now substantially undervalued and should be close to a major turn. The Gold / Silver ratio is also flashing the warning light, as it has reached lofty levels which most often signify the beginning of a broad bull market. Silver always outperforms gold on a rally and with the ratio near 85 we’re getting a strong indication that the rally may be coming soon.

Stelios Kontogoulas

The Basic Technical Analysis Perspective

Two weeks ago, Gold had a mini “capitulation” in Asian trade that took the precious metal below $1160 before reversing aggressively the following days. And currently, we are trading well above that low as Silver continues to grind out a new cycle/trend low. In the event Silver bounces, the risk for a gold rally is high. We have a bull flag from the lows and the RSI is also developing a bull flag formation. At this time, a break above the $1200 level in the spot price could cause a short squeeze towards the $1240 level, being the breakdown point which was the lows from December 2017.

Gold Daily Chart
Gold Daily Chart

Silver is depreciating within a descending channel after breaking below the L/T symmetrical triangle at the end of June but we are finally starting to see the first signs of divergence. The RSI reached almost 20 at the previous low ($14.30) but is currently above 30 despite the metal trading lower while at the same time gold is failing to follow silver lower and to register a new low (cross-market divergence). We are watching $13.91 (the flash crash low) and $13.63 (the 9 year low) for support while a break above $14.50 and the descending channel resistance will indicate that a corrective bounce is underway. A breach of the 1st target brings $15.20 and $15.70 in the scope.

Silver Daily Chart
Silver Daily Chart

The Elliott Waves Perspective

 If we ignore the lower time frame charts on gold and focus on a weekly timeframe instead, we can actually notice that metal did not make any clear directional movement since 2015. All that we see are big swings in $1050-$1400 range. Normally this type of a price action represents a correction rather than impulse. So if we want to understand in which direction the market can break out once consolidation is done, then we have to look back to see where the market came from.

Well, we can see a very strong five wave fall from above $1900 level; it’s called an impulse that represents wave A as only one part of a big decline from 2011 highs. So if we are on the right track, then a new drop below $1000 will follow, maybe later this year or at the start of 2019 once corrective wave B is finished that we see it making a triangle. This is a five wave pattern and ideally now in the final piece of the puzzle; wave E which may see resistance at $1240-$1300 area. What should be important as well, it’s Dollar Index that is making a five wave recovery since January which means more upside on DXY equals to more weakness on gold. If you are a member of our ForexAnalytix service with an Elliott Wave package, then you exactly know what I am talking about.

This article was written by Forex Analytix

Global Stocks Fall as Emerging Markets Sale-Off Spreading to Developed Markets

The current weakness in the developing countries financial markets is the longest since 2008. The similarities go further than that: as well as 10 years ago, the aggravation falls in autumn, when the funds actively review their investment strategies, and the reasons are – chronic deficits and high level of debt.

However, then the source of the problems was developed countries, and at one time there was a popular idea of decoupling, proving that the problems of the developed countries would not have a significant negative impact on the developing ones.

History showed how erroneous these hypotheses had been, and the financial world has proved to be complex and interconnected, and all the countries have not been spared the echoes of the global financial crisis. Nevertheless, developing countries recovered faster, providing an increasingly serious share of the world economic growth in subsequent years.

It is likely that this time, in case of serious problems on the financial markets of large developing countries, the developed markets will be able to maintain immunity only until a certain point when the weakening of the markets will be relatively organized. The supporters of a limited influence on the markets of developed countries may also recall that the Asian crisis of 1997 did not cause any recessions in developed countries. But in 21 years the economies of developing countries have multiplied several times.

10 years ago, countries were coping with the global crisis through joint and coordinated solutions, while the growth of populism and protectionism in politics in recent years risks exacerbating local problems and result in the loss of valuable time to find joint solutions.

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Under these circumstances, s& S&P500 index lost 0.5% on Wednesday and futures trading slightly lower, increasingly keeping away from the historical highs achieved a week earlier, despite the strong economic data from the U.S. MSCI has decreased on Thursday morning by 1.8% in the area of one-year lows. Global stocks trading mostly lower on Thursday morning. The dollar index remains near 95.10 since the beginning of the month, having fallen by 0.2% on Wednesday. However, the development of pressure on EM market is able to develop the offensive of the American currency as a safe haven.

This article was written by FxPro

Global Stocks Lower on Trade Tensions, EM Currencies Keep Tumbling and Growing Demand for USD; Amazon Hits a Trillion Dollars

The crisis process is intensifying in emerging economies, which also affects their markets and supports the demand for the dollar. S&P 500 lost 0.2% on Tuesday and returned under 2900 level, despite the Amazon’s growth of capitalization over $1 trillion. Asian markets are declining after the data on a business slowdown in China. The published Services PMI was weaker than expected, declining for the third month in a row to the lowest levels since last October.

MSCI for Asia-Pacific region ex-Japan has been losing 0.5% for the second consecutive day; Nikkei225 has decreased by 0.4%. The Asian bourses remain concerned about the possible announcement of the tariffs expansion for Chinese imports by the United States as early as tomorrow. But the markets are not less concerned about the situation in the emerging markets in different parts of the world.

The currencies of Argentina, Turkey, South Africa and Brazil are considered vulnerable to changes of the investor sentiment due to large budget and current account deficits. Investors, first of all, withdraw money from there due to changing prospects of the global growth. A number of hotbeds of concern and the structural problems of those countries do not allow hoping for a quick solution. Perhaps, the problems will even grow in the coming days. The Argentine peso, the Turkish lira, the South African Rand have returned to the area of historical lows. The Indian rupee and the Brazilian Real have updated their lows to the dollar this week and remain close to these levels.

Against this backdrop, there is a growing demand for the dollar as a safe harbor. The structural deficits in emerging markets are further exacerbated by the introduction of tariffs and threaten to stifle China’s growth.

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The dollar index rose to a maximum of two weeks at 95.65 on Tuesday but lost most of its growth after the data on production activity in the US had been published. It exceeded expectations by regaining the demand for risky assets in the United States and somewhat softening fears. The U.S. is taking away from China the flag of the growth engine for the world economy.

The EURUSD fell yesterday to 1.1530 at one point but starts the Wednesday close to 1.16. On Friday and Monday, this level was an important short-term support, but now it looks like a meaningful resistance.

Among the macroeconomic news, the course of trades in the pair may be affected by the final estimates of Services PMI for the Eurozone countries. It is also important for the markets to publish the U.S. trade balance, which can bring the international trade back into the spotlight of the markets.

This article was written by FxPro

Precious Metals Move Down as USD Firm on Trade War Woes

Gold prices edged down on early Asian market hours as the dollar hit a more-than-one-week high on the back of intensifying global trade tensions and economic worries in emerging markets. The yellow metal is down about 8% this year amid rising U.S. interest rates, trade disputes, and the Turkish currency crisis, with investors parking their money in the dollar, which is being viewed as a safe-haven asset.

Spot gold XAUUSD was down 0.52% at $1,195.05 an ounce as of writing this article, while U.S. gold futures had dropped 0.56% at $1199.90 an ounce. The emerging market economic crisis is making currencies very weak and benefiting the dollar, which continues to pressure gold. Currencies including the Argentine peso, Turkish lira, South African rand, Brazilian real, Indonesian rupiah and Indian rupee have suffered in recent weeks.

Gold Down on Strong USD While Crude Oil Upon India’s Decision to Buy Iranian Oil

The dollar index DXY which measures the greenback against a basket of currencies hit its highest since Aug. 24 at 95.410. Investors of precious metals are now tracked the dollar’s movements very closely as interest rate expectations are greatly weighing down the market. U.S. dollar’s strength makes gold more expensive for holders of other currencies with safe-haven demand for gold this year overshadowed by the metal’s relationship with the greenback. Spot Silver XAGUSD is currently trading at $14.30 an ounce down by 1.32% on the day.

U.S. oil prices rose on Tuesday, breaking past $70 per barrel, after two Gulf of Mexico oil platforms were evacuated in preparation for a hurricane. Anadarko Petroleum Corp said on Monday it had evacuated and shut production at two oil platforms in the northern Gulf of Mexico ahead of the approach of Gordon, which is expected to come ashore as a hurricane.

Meanwhile, one of the world’s biggest oil importers India has allowed state refiners to import Iranian oil if Tehran arranges and ensures tankers. Many international shippers have stopped loading Iranian oil as U.S. financial sanctions against Tehran prevent them from ensuring its cargoes. Mirroring a step by China, where buyers are shifting nearly all their Iranian oil imports to vessels owned by National Iranian Tanker Co (NITC), this means that Asia’s two biggest oil importers are making plans to continue Iran purchases despite pressure by Washington to cut orders. Spot Crude WTIUSD is trading at $71.16/b up 0.78% on the day.

How to Trade Using the Carry Trade Strategy

Carry trade is the borrowing or selling of a financial instrument with a low-interest rate, then using it to buy another instrument with a higher interest rate. The trades will either be going short on the lower interest rate currency or going long on the higher interest rate currency, with the carry trades needed to be held for a prolonged period of time using leverage for enhanced returns and take advantage of interest rates spread between the two currencies.

The use of leverage with a broker to increase earnings multiples through interest rate arbitrage is considered to be a ‘risk on’ strategy, where investors will either consider the current economic environment to be positive for their position or, more importantly, for the economic outlook to be positive, supporting an interest rate diverging environment that enhances carry trade returns. The strategy is based on the evaluation of the economic situation of each country or financial zone.

Risk Aversion – How to Trade the Carry Trade?

The carry trade has been a particularly popular medium to long-term strategy within the FX world, with shifts in interest rates tending to be few and the opportunity to take long-term positions to appeal to investors and hedge funds. 

Basically, carry trade is all about the interest rates differentials, and, more importantly, interest rates prediction.

Yet, for the retail investors, cautions must be taken into the account. While in an ideal world, where political stability persists and macroeconomic conditions have been supportive of carry trades, it is not always as simple as moving from a low yielding to a high yielding environment.

Economic shocks will be reflected within the FX world, sometimes far more quickly than in other asset classes.

Additionally, while central banks have a tendency to provide guidance for the financial markets, supposedly giving ample time to respond and position in anticipation of a shift in policy, some central banks are less interested in forwarding guidance than other. A surprise shift in policy by a central bank capable of eroding any returns made through a carry trade on a given day and even lead to heavy losses.

Risk aversion can also come about from natural disasters or war and not just from a shift in the policy outlook.

In summary, key risks to carry trade positions include:

  • Geo-Political Risk – A political event that will influence sentiment towards monetary policy and economic outlook for a given country, such as Brexit, sanctions, trade war and more.
  • FX risk – returns from interest rate differentials offset by exchange rate movements in the carry trade, leading to losses in spite of interest rate differentials favoring the carry trade.
  • Gearing risk – Losses resulting from unexpected movements that are exasperated by leveraged positions that could result in margin calls or even positions being stopped out by an exchange.
  • Interest Rate Risk – More of an issue when including compounding interest. Movements in interest rate differentials can have a positive or negative impact on returns, with a narrowing in differentials leaving returns lower than expected until the next interest compounding period.

And yet, although risk aversion can be a risk for carry trades positions, carry trades can come as a smart decision for a long-term investment or a trigger to buy/sell any instrument.

The most traditional carry trades have been the USD/JPY, the NZD/USD, NZD/JPY, AUD/USD and the AUD/JPY, with the EUR/USD coming into its own since the global financial crisis. There are others, including the Brazilian real and the Turkish Lira, with some more volatile exotics also on offer, but risk appetite will need to be particularly high and with some economies less transparent than others, carry trades into such exotic currencies come with significant risk. Although these pairs are at the highest level of popularity when it comes to carry trades, any currency or currency pair can be considered a carry trade transaction.

Interest rates spread between two countries can be the main catalyst for a strength of one currency over another currency.

Looking at today’s interest rate environment, the EUR and the Japanese Yen are amongst the preferred funding currencies, with interest rates sitting at or below 0%.

When looking at the recent moves in yields for 10-year U.S Treasuries, the material shift in sentiment towards the U.S economy and monetary policy outlook has seen the Dollar rally of late, with year-to-date losses having been all but wiped out in just a matter of weeks.

For those looking to take on carry trades, finding the right trading platform that offers the appropriate trading tools is key. HQBroker is one such platform that offers the trading of FX and CFDs, giving the trader the option to scalp, swing or take on longer-term positions that includes carry trades, with the use of leverage to enhance returns.

Every trader must research and understand the significance of carry trades prior to entering a transaction and at the exit of the transaction. Carry trades and interest rates differentials provide the volatility in the FX market and more importantly, provide the opportunity for a trader to execute a carry trade, with high odds of a positive return.

Manufacturing Slow Down is the Price for Trade Uncertainty, EM Currencies Continue to Lose Ground

The markets are cautiously on buy for American stocks, and the dollar adds on fears that trade conflicts are seriously stifling the business sentiment in Europe and Asia. The MSCI Index of the Asia-Pacific region ex-Japan loses 0.3%, Nikkei 225 decreases by 0.1%. Pressure on the European exchanges increased after the weak production PMI, indicating a negative impact on the economy of the USA trade disputes region.

The dollar index had kept above the 95.00 level by the end of the day and rising today to trade at 95.43 at the time of writing. EUR/USD is traded near 1.16, as at the start of trading on Monday, and the British pound lost 0.8% within a day for the same time to $1.2832. Pressure on Sterling intensified after the news about the decline in production PMI of the country to the minimum since the referendum on Brexit.

Asia’s business activity is also decreasing on fears of increasing trade wars, which causes the outflow of funds from the stock markets and currencies of the region. The Indian rupee updates its historical lows to the dollar, and the Argentine peso lost more than 3% on Monday. The Turkish lira exchange rate did not change a lot on Monday, as the central bank of the country made it clear that it was preparing some measures to combat a huge jump in inflation. In all cases, the central banks of developing countries are forced to tighten their policy by various measures, which will almost inevitably raise credit rates for companies and consumers and will slow the growth.

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PMI indices for Europe are also in decline, but are at a higher level, reflecting a robust growth rate, while in Britain and China the production growth is close to stagnation, and has been losing noticeably since the beginning of the year. The latest estimates for August on the United States will be published today, and we have yet to see whether they confirm or contradict the overall trend. According to previous estimates by Markit, the production activity in the United States decreases but remains at a high level as in Europe. ISM estimates do not mark a certain trend for recent months.

Maintaining a high rate of the economic growth despite the threat of trade wars and tightening of the monetary policy favorably distinguishes the U.S. markets from the rest of the world, creating an objective craving in the dollar and stocks. This draught can be intensified with the onset of autumn as the new fiscal year approaches.

This article was written by FxPro

Markets Under Pressure on Fears of US-China Trade War Escalation, A Busy Week Ahead

Asian markets have been declining for a third consecutive trading session on the fears of the Chinese-U.S. trade tensions escalating. The odds are that Trump will announce the expansion of tariffs for Chinese goods worth from $50 to $200 bln. on this coming Thursday.

Already introduced tariffs significantly suppress investors’ sentiment – India’s companies are gaining an advantage in the production of goods that have already been tariffed, and Russia’s role as an LNG importer for China is growing. The escalation of the trade war risks further disrupting the habitual trade flows in the long term. In the short-term, it risks putting serious pressure on the stock markets. The Shanghai index is traded near the lows of 2.5 years. MSCI Asia-Pacific region without Japan has lost 0.7% this morning; Nikkei225 has decreased by 0.5%.

The demand for protective assets supports the dollar. The dollar index has begun the trading the week at 95.10 – week highs. The EURUSD pair is once again testing support for 1.1600. The Australian dollar at the start of the new week has fallen to 0.7160, the lows since January 2017. The New Zealand dollar sank to 0.66, returning to a decline after a rebound in the previous two weeks. The demand for the protective yen and the dollar can remain the predominant theme of this week in anticipation of important news on the labor market and the announcement of Trump tariffs.

The dollar index in the second half of the week returned to the area above 95 on the turbulence of emerging market currencies, including Argentina and Turkey. These levels of the dollar index continue to act as a strong level of support and attract interest in buying on the dips strategy amid the rising tensions around traditional high-yielding currencies.

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The British pound has fallen under 1.29 this morning, giving back more than 60% of the last week splash, when the EU claimed that they were ready to offer a deal to Britain. From the technical analysis side, the British currency has compensated a short-term overbought and could be under moderate pressure following the global markets.

This article was written by FxPro

Argentine Peso and Turkish Lira Frighten the Markets

The markets have been under pressure on Thursday and at the start of trading on Friday, the cautiousness is growing. Global stocks closed the week lower although US indices finished the week flat.

The events around the Argentine currency were in the spotlight. The central bank of the country raised the interest rate from appalling 45% to unimaginable 60%, amid the depreciation of the exchange rate by more than 20% intraday, and despite the assistance of the IMF, which was offered earlier. This dynamics has brought a cautious attitude to markets and caused the sale-off for the risky assets.

The Turkish lira decreased by more than 6% intraday on Thursday after the events around the peso and against the backdrop of the resignation of a major official in the Central Bank of Turkey. The Lira corrected on Friday to close the week at 6.55.

Despite all the mentioned above, yesterday’s sale of currencies and markets of the developing countries seems too emotional. The main problems are not solved, so after some rollback, we can see that the pressure on these markets may be increased.

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At the same time, the futures on S&P500 are increasing the losses keeping away from the record levels. The fact that at the beginning of the week the indices have risen to the oversold area also works in favor of the rollback development. The rollback can be a harbinger of a deeper correction when taking profit flows from growth on the US markets can coincide with a storm in emerging markets.

Currently, emerging markets currencies remain the main focus of financial markets.

This article was written by FxPro

US 2Q GDP Above Expectations, Global Stocks Mostly Higher as Trade Concerns Ease; Turkish Lira Collapse Continues

US growth domestic product for the second quarter was revised up to 4.2, instead of the previously reported 4.1%. The data beat analysts expectation of 4.0%.

The dollar is almost unchanged to the major currencies in the past 24 hours; it managed to recover the losses incurred on Tuesday morning. The dollar index fell to 94.35, the lows since August 1 following the surge in demand for risky assets on the news about the start of the U.S.-Mexico trade negotiations. However, the market has returned to the safe-haven demand quite quickly: EM currencies fell under pressure, and the participants of the U.S. stock exchanges fixed the profit after S&P 500 grew to 2900 level. The index earlier this week has finally overcome the downturn since the beginning of the year and has added 2.7% this month, renewing historical highs.

Global stocks trade mostly higher on Wednesday morning as global trade concerns ease following US-Mexico trade agreement. The focus currently shifts to trade dispute between the US-China.

This is a considerably strong movement, so it is reasonable to expect some traction to the fixation of profits by major participants on the final days of the month. In this case, the dollar can get some support after two and a half weeks of decline. In addition, the single currency returned to the area of resistance, having reached the 1.1730 of a dollar, after which the pair turned to decline and is traded now at 1.1680. The British pound, the Japanese yen and the Australian dollar were decreasing on Tuesday to the US dollar. Crude Oil and Gold were losing the part of their earlier gains as well, hitting the wave of profit-taking

The Turkish Lira continues its way down on the rising tensions between Turkey and the United States. The Turkish lira fell by 2.00% to trade at 6.3984 at the time of writing.

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The Mexican peso lost on Tuesday 1.8% to 19.07 per dollar after the details of the bilateral agreement had been announced. With regard to the automotive industry, it provides the U.S. President with the possibility to introduce 25%-tariffs for the import of cars above the level of 2.4 million, which is solely one third higher than the deliveries of the year 2017. The lowering of the peso was reinforced by a general sentiment of currencies weakening in the developing countries during trading on Tuesday.

This article was written by FxPro

Stocks Rise on Powell’s Comments, Turkish Lira Falls Again

Powell’s tempered comments in Jackson Hole last week supported the growth of U.S. stocks which closed at record highs. Futures on S&P500 оn trades in Asia continued its historical highs updates, adding another 0.3% from the beginning of the day to levels 2884.5. The growth of American bourses helps Asian markets this Monday morning. Heng Seng 50 adds 1.4% on Monday morning.

In his speech on Friday Powell noted that rates increase will remain gradual. It was also important for markets to hear that rate hikes are not predetermined, and a further path will be data-dependent.

These comments have caused a somewhat reduced degree of tension around the further rate of growth, it also pushed stock markets up and added pressure to the dollar.

The dollar index returned to area 95 on Friday night and remains at these levels at the start of trades on Monday. Last week this mark served as an important level of support. It is likely that the dollar will continue to benefit from the demand for rollback to these levels.

The EURUSD pair grew to 1.1650 at one point at the start of the Monday, to 3 weeks highs, but lately, it somewhat corrected to the area 1.1630, to the levels of Friday’sclosing. Sterling is trading near 1.2850, adding 0.4% to Friday’s lows.

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The Turkish lira attracts investors’ attention on Monday morning as the lira gained 2.00%, trading at 6.1099 versus the US dollar. Investors will keep an eye on the dispute between the US and Turkey and the current unstable economic situation in Turkey.

The development of bull market rub in the US stock markets helps to restore the demand for commodities. Gold added 1.9% on Friday, returning to levels near $1205, which is quite a quick recovery from lows at $1173 on August 15. Brent Crude Oil is trading around $76 per barrel, at 7 weeks after EIA report that U.S. oil refineries are working at the limit of their capacity that would force to increase import of fuel at a further growth of demand. Oil is traded at the top of the downward channel, and further growth can signal an over of downward trend, which is in effect from the end of May.

This article was written by FxPro