This Time Trump Can Stop the Dollar Rally

The dollar fell under pressure after Trump’s interview with Reuters, where he reiterated that he is “not thrilled” by the actions of the Fed and prefers a policy of low-interest rates. The dollar index lost 0.7% over the past 24 hours. EURUSD up to 1.1530, the maximum in the last 2 weeks.
Previously Trump used similar verbal interventions in an attempt to stop the U.S. Dollar rally. Such comments were made on July 19, which restrained the dollar from growth for several weeks. Investors were waiting for Powell’s reaction to the president’s dissatisfaction. However, the Fed has not changed the rhetoric, hinting at the willingness to raise rates as soon as September. In addition to raising the rate of the Fed, the dollar is also supported by Trump’s policy. Trade conflicts with China and diplomatic rifts with Turkey raise the demand for protective assets away from the epicenter of the crisis. Under these conditions, the dollar has played a role of safe haven asset.
Despite the fact that the central bank is pursuing an independent policy, the president and his administration are nominating candidates for key positions in the Fed, and several appointments are still to be made this year. The markets fear that Trump’s words may be a signal to search for more “dovish” candidates for key positions.

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Trump’s comments could play an important role in the dollar’s dynamics. EURUSD has returned to the area above 1.1500, back to the trading range from May to mid-August. If the pair is able to stay above this mark by the end of the day, technically it will cross out the recent dollar rally. In addition, the relative strength index (RSI) has returned from oversold levels for EURUSD that is another strong bearish signal against the dollar.
Thus, Trump’s words could seriously affect the technical picture of the dollar for the next few days, preventing it from pausing the rally with potential targets for EURUSD near 1.11 on even lower in 1.04 area. However, for Trump dollar is not a goal, but a means to achieve his political goals. The active imposition of sanctions, as was the case earlier this year against Iran, Turkey and Russia, will preserve the status of a protective asset for the dollar, and the new tariffs continue to force the Fed to raise rates to fight inflation pressure.

This article was written by FxPro

Despite the End of Earnings Season, Corporate Activity Likely to Drive Price Action

Slow and steady appears to be the message on Wall Street early Monday with stocks grinding higher on low volume. Earnings season is rapidly coming to a close, leaving investors with little to follow except geopolitical events, economic data and other corporate news.

The situation in Turkey appears to have calmed enough to make today a risk-on session. Last week’s steep sell-off in the Turkish Lira wasn’t really about its economy, but U.S. tariffs. The Turkish economy has been in a steady decline for quite some time so this had been priced into the market. But investors weren’t prepared for the additional tariffs from the U.S.

So although conditions have calmed, culminating with a markdown by the credit rating agencies this week-end, the situation is still a powder keg because the U.S. could impose additional sanctions at any time. However, with Turkey going on holiday from August 21 to August 24, we may see limited action in the currency until later in the week.

Additionally, it doesn’t look like European banks faced a contagion problem after all. That may have just been a rumor to drive the Euro lower. Finally, the situation in Turkey may have been overplayed last week since its economy is about the size of Florida’s.

Financial turmoil in the markets could return at any time over the near-term, but not because of problems in Turkey, but in response to growing concerns over economic crises in Venezuela and India.

The “other” economic event this week is the renewed trade talks between the United States and China. Despite the friendly headlines, insiders are saying that this meeting, which is supposed to take place this week, is a low-level meeting so don’t expect any major news.

Domestically, the Fed minutes is on the watch list for many investors this week. However, today’s stock market activity suggests the minutes from the last Federal Open Market Committee meeting about two weeks ago is not expected to show any major surprises. This is typical of the July meeting minutes. The Fed usually makes its moves at its quarterly meetings. There may have been some discussion of the impact of tariffs on the economy, but nothing that could have affected Fed policy. Additionally, the meeting took place before Turkey’s currency crisis so we’re not likely to see any policymaker comments on stock market volatility or the weakness in the emerging markets.

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Earnings may be over, but that hasn’t stopped corporations from making news and driving the stock market higher. Monday morning, Pepsi agreed to buy SodaStream for $3.2 billion, or $144 per share. According to CNBC, the agreed price per share represents a 10.9 percent premium from SodaStream’s closing price of $129.85 on Friday. The deal is expected to close by January.

In other corporate news, Tyson Foods confirmed it was buying Keystone Foods, a chicken-processing company, for $2.16 billion in cash.

Stocks are expected to continue to grind higher this week because the news events are expected to be positive, or have no major impact. Furthermore, the market is in a position to become the longest bull market in history.

Global Stocks Edge Higher on Planned US-China Trade Talks, Fed Can Form a New Basis for EM Currencies Outflow

Asian bourses remain moderately optimistic since the end of last week. Expectations are encouraging that the Chinese and Turkish authorities should be able to find economic support measures and stabilize the exchange rates of their currencies. Beijing defended its currency from a decline to 7.0 for the dollar last week, and also already offered to the US a meeting for trade negotiations this week.
As a result, Asian markets add about 0.3% this morning and CNH traded on 6.84, below last Wednesday near 6.96. The Turkish lira has stabilized near 6.0 for Dollar from the end of trading on Friday, despite the cut of sovereign ratings from S&P and Moody’s.
Most likely, the deterioration of ratings will exert additional pressure on Turkish assets in coming days. Turkish authorities bought some time with promises of decisive steps, but in most cases, the outflow of investors from the country’s assets continues for several months, even if the authorities manage to contain panic. Most likely the “bottom” of the Turkish crisis is just ahead.
Players on the dollar, however, fixed the profit from the previous strengthening of the American currency. The dollar index lost 0.9% in the second half of the week, more than half of which had to be on Friday. However, this week markets focus will shift on the comments from developed countries central banks.
In particular, this week the Fed and ECB will publish their previous meetings minutes. Also at the end of the week attention will be focused on Powell’s comments as part of the central symposium at Jackson Hole. Fresh assessments of recent developments on EM can have a serious impact on the dollar, as investors will be able to look at how this would affect the Fed’s plans.

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The latest episode with the markets of developing countries is a clear indication of the fragility of the markets currently and the vulnerability of the world economy to a further slowdown. If the Fed continues to focus only on internal indicators, it can lay the groundwork for a new wave of outflow from developing countries and develop the current momentum of strengthening the dollar by making it a safe-haven asset in times of turbulence in markets.

This article was written by FxPro

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 are on the Rise due to Turkey and China Positive News, US Markets Open Higher

Markets are on the rise on Thursday morning on the news about the U.S.-China trade talks later this month. As a result, Asian bourses have stabilized: MSCI adds 0.3% after a decrease of 1.1% on Wednesday. The Chinese offshore yuan adds about 1% on Thursday morning and trades at 6.875 after reaching 18-month lows to the dollar overnight. The central bank of Turkey decided not to raise the key rates but had limited the possibility of a speculative attack on the lira. As a result, its course rose by 19% to 5.85 per dollar against the 7.24 at the start of trading on Monday.

Thus, the markets have received hope for stabilization of two most sensitive issues for the latest days, on Turkey and China. In both cases, the situation is far from being resolved, but the attention of the authorities to the topic and attempts to stabilize the situation, deter markets from further decline, allowing speculators to fix a part of the profits from the recent strong moves.

The mood for profit-taking has also spread to major currency pairs. The dollar index has decreased by 0.6% from the highs of the Wednesday and is trading near 96.50. The EURUSD pair gained on support on the decline to 1.13, adding almost a figure (1 cent) to the lows of the previous day, and is trading at 1.1360 before Europe open. In case of development of a rollback in a pair, it is necessary to pay attention to dynamics near 1.15 which until recently was an important support level. Strong growth above this mark gives a signal about the serious intentions of the Euro-bulls and can become a testament to the end of the impulsive sale-off. However, by now we could hardly talk about serious chances to reverse in the euro dynamics.

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Still, there is a lot of evidence of the growing strength of the dollar. The volatility of the Turkish lira, although capable of worsening the positions of European banks, affecting on lending and possibly containing the ECB on the way to normalize rates.

Moreover, we have strong statistics from the United States. Yesterday’s retail sales were marked by an increase of 0.5% m/m and by 6.4% y/y, which significantly surpasses the rate of price growth, which is 2.9% y/y.

Brent Crude Oil fell on Wednesday to $70.50, updating the 4-month lows, but later have stabilized around the $71.30. Oil fell by 2.3% yesterday after reports of unexpected growth in inventories and production in the US last week. Crude oil inventories declined by 11% to last year’s levels, but it is almost half the rate of March when the fall to the last year was 20.6%. Despite the short-term stabilization of the price, it is worth noting the dominance of the downward trend. An important technical indicator for observation is the line of 200-day average, which passes near $70 per barrel. Overcoming this mark can serve as a signal to a prolonged sale.

This article was written by FxPro

U.S. Stocks Plummet as Turkey Crisis Continues, Crude Oil Plunges on Unexpected Inventories Build

The major U.S. equity indexes are under pressure Wednesday following a weaker cash market opening. Investors are cutting risk and paring positions in reaction to lingering concerns over Turkey’s financial crisis. The benchmark S&P 500, the blue-chip Dow and the tech-driven NASDAQ Composite have all fallen by as much as 1 percent early in the regular session.

The over-extended technology sector is falling sharply because of valuation concerns. Banking stocks are under pressure because of contagion fears. Additionally, some investors fear that a global economic slowdown or excessive stock market volatility could encourage the U.S. Federal Reserve to pull in the reins on its plans to raise interest rates in September and December.

According to the CBOE Volatility Index (VIX), widely considered the best fear gauge in the market, volatility rose more than 13 percent to 15.13. Additionally, another fear gauge, 10-year U.S. Treasury yields, fell to 2.868 percent early Wednesday.

Turkey’s Latest Moves

Officials and policymakers in Turkey continue to push the wrong buttons, or seemingly make the wrong combination of moves to stem the selling pressure on its currency and equity markets. Major investors all seem to agree that the country’s new policy decisions have not been enough to stabilize the situation.

The latest move from Turkey was limiting banks’ currency swap transactions. This move is aimed at curbing short selling against the Lira. The problem with this decision is that it comes late in the process and should’ve been implemented last week. Turkish officials also need to be more proactive than reactive.

According to analysts at J.P. Morgan, in order to gain control of the situation, Turkish policymakers need to adjust policy rate hikes to between 5 and 10 percent, have a fiscal commitment to backstop and recapitalize banks and deal with problem loans, target fiscal support for the most distressed sectors, and a general policy framework which acknowledges the need for deleveraging and recognizes a recession is a natural side-product of this process.

Essentially, the country needs to follow the blueprints laid out by many of the central banks during the global financial crisis in 2008-2009, that is to isolate the bad loans and to flood the market with liquidity. Furthermore, Turkey needs to stop challenging the U.S. with tariffs because its economy can’t win a trade battle with the United States. Additionally, there needs to be progress made on the detention of U.S. pastor Andrew Brunson, which some say sparked the crisis in the first place.

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U.S. Economic Reports

U.S. retail sales rose more than expected in July. According to the Commerce Department, retail sales increased 0.5 percent last month. But data for June was revised lower to show sales gaining 0.2 percent instead of the previously reported 0.5 percent rise.  Economists had forecast retail sales nudging up 0.1 percent in July.

Weekly Crude Oil Report

Crude oil prices plunged on Wednesday after the U.S. Energy Information Administration said U.S. crude stocks rose by 6.8 million barrels, trouncing the forecast for a 2.6 million barrel drawdown during the week ended August 10.

Global Stocks Fall as Turkey Worries Weigh; US Futures Set to Open Lower, Dollar Updates Its 13-Month Highs

The strengthening of financial markets on Tuesday has not been unsustainable and prolonged. Recent shots in the U.S. trade conflicts are: a China’s claim to the WTO about US tariffs on renewable energy imports and subsidies to their own producers; Turkey has put obstruction duties on a number of goods from the United States, including passenger cars, and has announced a boycott of American electronics.

On Wednesday morning, the markets are again under pressure on new episodes of U.S. trade conflicts. Again, at the epicenter of the fall are the Asian exchanges as MSCI lost 0.8% and Hong Kong’s Hang Seng fell by 1%.

At the same time, we saw almost an uninterrupted demand for dollars in the currency market. Despite yesterday’s rollback at the stock exchanges, the U.S. currency continued to strengthen its main competitors. The dollar index added 0.4% on Tuesday and continues strengthening on Wednesday morning adding another 0.1% and trading at the level of 14-month highs.

EURUSD sank to 1.1320 in the morning, having lost more than 2.5% over the past week when the pair traded above 1.1600. The sales in pairs intensified after the exit from the trading range since May on fears around the stability of the eurozone banking sector against the backdrop of Turkey’s problems. Cravings in dollars can be saved for the next few days against the wave of stop-orders. The goals of bears in EURUSD pair in the course of the current impulse decline may become 1.1150, the levels of previous local lows. The longer-term targets for the next months could become the levels around 1.04, at which the pair had traded in early 2017.

Sterling also continues its falling, dropping to 1.2700 on Wednesday morning. Here the nearest local lows are the levels of 1.2630, the capture of which opens the way to 1.21 – to the global lows after Brexit.

The gold is keeping its way down. In the morning, it rewrote the lows of January 2017, dropping to $1186 per ounce. Amid the growth of the dollar and the fears of problems in key consumer markets for this metal (China, Turkey), the gold has yet sought support unsuccessfully.

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Since the situation with trade and diplomatic conflicts between the United States and other countries is far from being resolved and is only gaining momentum, the craving for dollars can also be intensified. Perhaps, the most significant risk for the dollar may be another verbal intervention of Trump against the strengthening of the dollar. It is impossible to exclude changes in the rhetoric of the Fed policymakers. In previous years, weakening in the foreign markets forced FOMC under chair Yellen to review its plans for the tightening the policy. We have to see if the Fed’s views would be reconsidered under Powell’s administration.

This article was written by FxPro

Gold Edges Up Slightly As Turkish Lira Becomes Stable

Gold prices edged up on Tuesday from an 18-month low hit in the previous session as a break below a key psychological level triggered buying interest, while the U.S. dollar pared gains after scaling a 13-month high amid stabilizing Turkish lira.

Spot gold XAUUSD is up 0.11% on the day at $1,194.91 an ounce, as of writing this article. In the previous session, the bullion hit $1191.66, its lowest since Jan. 30, 2017. Meanwhile, US Gold Futures GCcv1 is currently trading at $1201.60 an ounce, up 0.22% on the day. As stop-loss selling pushed the market lower below $1,200, fresh buying sentiment was found in the gold market as US Greenback weakened from selling activity. However, the market is still under pressure as the U.S. dollar is still very strong.

Also, interest rates are poised to go higher and market sentiment continues to be bearish on gold. The dollar index DXY which measures the greenback against a basket of six major currencies, is down about 0.01% on the day at 96.31, after climbing to a 13-month high on Monday.

Precious Metals Could Gain Momentum in Case Turkish Crisis Worsens

People are betting on better growth prospects in the United States, hurting gold’s prospects. Technically, gold is looking bad and may test $1,165 in near future. Gold, which is traditionally considered as an insurance against political and economic uncertainty, has failed to benefit this year as investors prefer currency safe haven instruments over USD denominated precious metals.

Investors have made a beeline for U.S. Treasuries, seen as the ultimate safe haven, which meant they had to buy dollars greatly affecting sentiment and momentum around precious metals. If Turkey contagion spreads further, we may see some buying (in gold). But, as of now, the U.S. dollar continues to be a safe haven buying option. Investors’ bearish stance on precious metals continued to reflect in record short positions and in the outflow of gold exchange-traded products. Spot silver also managed to make the most of market scenario as USD’s temporary pullback has pushed XAGUSD to $15.04 up 0.31% on the day.

Crude oil futures were higher during mid-morning trade in Asia Tuesday as the market anticipated a fall in mid-week US crude inventory data while digesting OPEC’s latest report. A preliminary report on last week’s US inventory levels is due for release by the American Petroleum Institute later today and more definitive numbers by the US Energy Information Administration on Wednesday. Despite the positive expectations, activity was muted Tuesday as market focus remained on OPEC’s monthly report on oil fundamentals, which forecast global demand for OPEC’s crude at 33.40 million b/d for both the third and fourth quarters. That is 1.08 million b/d more than the bloc’s July production level, as assessed by the independent secondary sources used by OPEC to track member output.

Saudi Arabia’s output fell 200,000 b/d in July to 10.29 million b/d, according to OPEC’s monthly report which indicates Saudi failed to honor its agreement with OPEC allies to boost production but the Turkish crisis weighed down the market resulting in Crude oil price taking a steep fall in later half of Monday’s trading session. WTIUSD is currently trading at $68.09/b up 0.53% on the day.

Profit-Taking after Big Sell-Off Helps Markets on Tuesday, Turkish Lira Recovers on Turkey’s Central Bank Interference

There is a demand for profit-taking in the markets after powerful movements at the end of last week and a very aggressive trading start of the week. On Monday afternoon there was a cautious demand for some risky assets, as investors considered recent sell-off has gone too far. However, investors should be cautious. The key problems that have caused pressure in the markets are still unresolved, which means that a new wave of flight from risks is likely to be in the near future.

EURUSD is trading near the closing levels of Friday in the area of 1.1400 after the fall at the start of Monday down to 1.1360. The South African Rand (ZAR) has almost completely recovered its losses after a sliding by 10% early in the day on Monday. The Turkish lira has stabilized near 6.5 per dollar after the country’s central bank had announced the measures to maintain liquidity. This morning the course remains near the yesterday’s levels and thus, allows hoping for some respite in updating the historical highs. The interventions of the Central Bank of India and Indonesia played its calming role for the Emerging Markets.

It may also be expected that EM countries will increase their rates in order to protect against capital outflows, despite the risks of economic slowdown.

And yet it should be noted that the risks of further tension growth remain possible in the markets. The key problems remain unresolved: the diplomatic conflict between the United States and Turkey does not wane, with Erdogan’s statements on Friday only have added fuel to the fire. The trade dispute between the USA and China has not led anywhere yet, and the latest data has already indicated the slowdown of the 2nd world economy as a result of the earlier imposed sanctions.

Markets can get a respite from the rally today or for a few days at best, but the worst is still ahead as we could see the sale-off on stock and bonds markets, which often happens with some lag after the speculative currency moves.

On the commodity markets, there also were some big movements on Monday. OPEC’s forecast update caused oil collapse by more than 2% to $71.17 per barrel Brent, the lowest rate since April this year. The reason was the decreased expectations of the demand growth and the estimation, that the countries outside OPEC increase production faster than the demand grows. The issue of oil supply surplus is becoming relevant once again. This is bad news for OPEC, whose market share has declined in recent years from the usual 40% to 32%, and the stabilization of supply requires even bigger reduction. Just one month after the increase in quotes, it looks unlikely that the cartel would lower them once again.

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The gold fell below the $1200 per ounce against the backdrop of the weakening of currencies, which are ones of the main precious metal consumers (China, India, Turkey). Nevertheless, the prospects of further gold weakening look limited. For developing countries, the gold can be a good politically neutral means of saving the capital before the threat of the increasing inflation.

This article was written by FxPro

Gold Falls Further As Turkish Crisis Spiked Demand for USD

Gold prices extended declines into a third session on Monday, as the U.S. dollar climbed to a 13-month high against major peers amid the financial crisis in Turkey. Spot gold XAU= had dropped 0.47% to $1,205.74 as of writing this article, hovering not far from a 17-month low of $1,204 hit earlier in August. U.S. gold futures GCcv1 were down 0.52% at $1,212.60 an ounce.

Gold today is seeing the continued downward movement as the USD-CNH and USD-CNY continued to advance. The U.S. dollar rose against China’s Yuan CNH= CNY= on Monday and held steady after hitting a 13-month high against a basket of six major currencies. But Gold seems to have found some floor as equity market suffers from Turkish crisis which has affected greater part of European markets. Asian shares fell on Monday and the euro hit one-year lows against the dollar as a renewed rout in the Turkish lira drove demand for safe havens assets, including the U.S. dollar, Swiss franc, and yen.

Precious Metals Lack Demand As Investors Flock To USD, Swiss Franc, and Japanese Yen

The Turkish currency had plunged to a new record low on worries over President Tayyip Erdogan’s influence over the economy and worsening relations with the United States. However, the market waits for more details on economic action plan from Turkey which Finance Minister Berat Albayrak said will be implemented starting today. But so far no news has hit market regarding the economic action plan.

China’s central bank on Friday said it would maintain its prudent and neutral monetary policy to ensure ample liquidity and keep the Yuan largely stable after the currency earlier this month hit a 14-month low versus the dollar amid ongoing Sino-U.S. trade tensions. U.S. dollar, in which precious metals are priced has benefited from recent global political and trade tensions, while the bullion market has not despite being widely seen as a safe-haven asset. Spot silver market continues to face bearish influence and as of writing this article spot silver XAGUSD is trading at $15.25 an ounce down 0.36% on the day.

Oil prices inched up on Monday as U.S. sanctions against Iran pointed towards a tighter market, although concerns over slowing economic growth amid global trade tensions kept a lid on gains. The United States has started implementing new sanctions against Iran, which from November will also target the country’s petroleum sector.

With U.S. sanctions on Iran back in place … all eyes have been on the impact on crude oil exports from that country. While maintaining global supply might be very challenging, the U.S. is doing its bit to increase production, with data showing drilling activity is continuing to rise. U.S. energy companies last week added the most oil rigs since May, adding 10 rigs to bring the total count to 869, according to the Baker Hughes energy services firm. That was the highest level of drilling activity since March 2015. Also potentially weighing on oil markets are signs of slowing economic growth and fuel demand growth, especially in Asia’s large emerging markets. As of writing this article, WTIUSD is trading at $67.83/b down 0.59% on the day.

Toxic Turkish Lira in A Free-Fall, Can Push EUR/USD to $1.04

The collapse of the Turkish lira spreads its toxic influence on the European and EM financial markets. Asian bourses have been losing more than 1% on Monday morning amid the increased demand for safe-haven assets. The futures on S&P500 lose 0.1% at the start of Monday trades, falling for the fourth trading session in a row. 

In addition, most of the emerging countries’ currencies, including the Mexican peso and the South African rand, are under pressure. The Turkish lira has lost 11% to 7.11 per dollar since the start of trading on Monday but somewhat stabilized after the country’s Minister of Finance gave an assurance that the government was working on a draft plan to stabilize the situation.

Thus, the epicenter of problems has moved from the Asian region and trade conflicts between the USA and China, the demand for the yen as a currency-haven has again increased. On Monday morning it adds to almost all the most traded currencies, including the dollar.

The technical analysis is on the side of dollar bulls. The dollar index came out of the trading range of the previous four months with a powerful movement, which is a strong signal demonstrating the continued growth of the American currency. The targets for the bulls may be near a psychologically important level of 100, which is about 4% higher than the current mark. It is possible that we can see an even more decisive offensive of the American currency.

The common currency was also hitOn Monday morning the EURUSD loses 0.2% after a decrease of 1% on Friday. The relationship between the Turkish economy, which goes down the drain following the lira, and the EU financial sector is capable of generating speculation that the ECB can change its plans to raise rates by deferring them to a later date than the summer of 2019. The EURUSD collapse last week could be a serious signal to decrease for the single currency. 

It is technically worth paying attention to the “head-and-shoulders” formation. The falling below support line at 1.15 last week marked the overcoming of the “neckline” in this technical figure, which opens the way to the area of the start 2017 lows, near 1.04.

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The strengthening of the dollar has an only limited impact on the gold. The precious metal dropped by $1208 per ounce from $1217, losing 0.8%, but by now it managed to stay above the recent lows for August at about $1205. Taking this mark can open the way to its deeper immersion. However, it is worth noting that the sale of the gold has lost its momentum, and after the consolidation, a reversal to growth can be expected. This growth can be supported not only by the seasonal demand but also by the investors’ flight from developing markets to safe-havens.

This article was written by FxPro

Turkish Residents Turn To Cryptocurrency As U.S Triggers ‘Economic War’

Steel & Aluminum Tariff Raise

Turkey finds itself in a ferocious economic meltdown on President Donald Trump approving a 20% tariff increase on the country’s Aluminum export and a 50% tariff increase on Steel. The turmoil has increased the appeal of most cryptocurrencies with Bitcoin (BTC) adoption on the rise.

The standoff between the two countries stems on Turkey refusing to budge to pressure and release evangelical pastor Andrew Brunson on trial for terrorism charges. Turkey opting to purchase Russian defense system also appears to have exacerbated the tensions.

“If the U.S. is turning its back on us…choosing a pastor instead, sorry…we continue our path with decisive steps. This treatment by America of its strategic partner has annoyed us, it has upset us,” said President Tayyip Erdogan.

A 30% plunge of the country’s currency Lira has forced Turkey’s residents to turn to cryptocurrencies for economic relief. The country’s cryptocurrency exchanges have started experiencing a spike in trading volume a trend expected to gain momentum as the citizens lose confidence in fiat currencies. The Lira alone is down by more than 40% for the year.

While trading volume remains low compared to that registered in other countries, the same could change as the Lira continues to lose value against the majors. Turkish Lira made up 0.07% of all Bitcoin trades in response to the tariff standoff; more than double the average volume recorded by local exchanges.

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Increased Crypto Adoption

Cryptocurrencies exchanges are increasingly cropping up to take advantage of increased demand for cryptocurrencies services. One crypto user by the pseudonym Bitmov has been using Bitcoin to buy digital ads abroad and now reports an increase in interest from friends and family looking to purchase digital currencies.

Increased cryptocurrency adoption also comes at a time of waning confidence on the country’s financial system. In recent years, citizens have questioned the country’s economic policies which they fear are not doing much to avert the effects of the severe debt crisis.

Turkish residents appear to be following on the footsteps of other countries that have turned to cryptocurrencies to avoid economic sanctions triggered by a standoff with the U.S. Venezuelans have turned to cryptocurrencies on the country’s currency diving on a standoff with the U.S. Iran is another nation that is considering launching its own cryptocurrency as a way of boosting the economy following economic sanctions from the U.S.

Concerned by the effects of the economic war with the U.S Turkish lawmakers are reportedly considering the creation of a national cryptocurrency.

While a good move, local exchanges remain skeptical about its potential impact is given Bitcoin’s popularity. The exchanges fear the government following Iran footsteps and restricting access to Bitcoin exchanges as a way of raising the nations’ official cryptocurrency profile.

Geopolitical, Domestic Events Drive Higher-Risk Currencies Sharply Lower

Geopolitical and domestic events drove most major currencies lower last week with the exception of the Japanese Yen which posted a modest gain.

New Zealand Dollar

The New Zealand Dollar closed sharply lower against the U.S. Dollar last week after the Reserve Bank unexpectedly committed to keep interest rates at record lows through to 2020 on disappointing economic activity. The dovish news caught investors off-guard, fueling a massive sell-off in the currency.

The NZD/USD settled at .6577, down 0.0171 or -2.53%.

The Reserve Bank of New Zealand kept its official cash rate on hold at 1.75 percent in a widely expected move. It also downgraded its forecasts for 2019 gross domestic product growth to 2.6 percent from 3.1 percent.

The RBNZ sees the cash rate steady for much longer than earlier forecast, signaling stable rates until late 2020. Back in May, the central bank had projected rates at 2.0 percent by March 2020.

Australian Dollar

The Reserve Bank of Australia wasn’t as dovish as the RBNZ, nonetheless, the Australian Dollar weakened as the central bank showed no intention of raising rates over the near future.

The AUD/USD settled at .7295, down 0.0102 or -1.38%.

Last week, the RBA ended its August monetary policy meeting by holding rates at a record low of 1.50 percent, marking two whole years with no move in interest rates, the longest policy pause in its modern history.

“Further progress in reducing unemployment and having inflation return to target is expected, although this progress is likely to be gradual,” RBA Governor Philip Lowe said in a statement, reiterating his previous outlook.

Late in the week, the RBA issued an upbeat monetary policy report, with policymakers continuing to project that “above trend” economic growth will drive the unemployment rate lower, and wages higher, thereby pushing consumer price inflation higher over coming years.

Despite the upbeat report, investors felt the projected increase in inflation is still insufficient for markets to boost expectations for an Australian interest rate rise before late 2019.

Japanese Yen

The Dollar/Yen was under pressure last week on trade tensions and on revelations the Bank of Japan is under pressure to move away from its accommodative policy.

The USD/JPY settled at 110.933, down 0.340 or -0.31%.

A summary of opinions from the July 30-31 BOJ board meeting released on Wednesday showed that one member wanted to allow long-term yields to move in an even wider band than the range indicated by the central bank.

Geopolitical Tensions and Safe-Haven Buying

Geopolitical tensions in Turkey drove the Lira sharply lower, causing investors to dump higher-yielding currencies like the Euro, Australian and New Zealand Dollars. Money then flowed into the safe-haven U.S. Dollar and Japanese Yen.

The Euro in particular was crushed to its lowest level against the U.S. Dollar in more than a year as a plunging Turkish Lira sparked broad risk aversion, with investors worried about a contagion effect on European banks. Turkey’s Lira plummeted as much as 18 percent on Friday as worries about President Tayyip Erdogan’s influence over monetary policy and worsening U.S. relations snowballed into a market panic.

The Russian Rouble also retreated to its lowest level since November 2016, weakening beyond the psychologically important 65 per dollar threshold, after the Trump administration said it would impose fresh sanctions on Moscow.

U.S. Equities Retreat, Treasury Yields Plunge as Turkish Lira Tumbles on Global Credit Contagion Fears

The major U.S. stock indexes finished mixed last week with the S&P 500 Index posting a lower close for the first time since the week-ending June 29. Weighing on equities were worries of financial and currency turmoil in Turkey as well as continued tariff retaliation between the United States and China.

For the week, the benchmark S&P 500 Index settled at 2,833.28, down 0.2%. For the year, it’s up 6.0%. The blue chip Dow Jones Industrial Average closed at 25,313.14, down 0.6%. It’s up 2.4% in 2018. The tech-based NASDAQ Composite ended the week at 7,841.87, down 0.4%. It has gained 13.6% this year.

At mid-week, the S&P 500 Index had climbed to within half a percent of its all-time high set back in late January before profit-takers stopped the rally and fueled the weakness into Friday’s close.

Despite the weekly setback, the markets have proved to be resilient for a little over a month. Investors have had to overcome political turmoil, global trade spats and worries over rising interest rates. At the same time, healthy economic data and record corporate profits have helped underpin the indexes.

U.S. Treasury Instruments

U.S. government debt yields plunged on Friday as global credit contagion fears surrounding Turkey encouraged asset managers to aggressively move money into relatively safer assets.

The yield on the benchmark 10-year Treasury note fell 6 basis points to 2.873 percent, while the yield on the 30-year Treasury bond dropped 5 basis points to 3.03 percent.

U.S. Economic News

Consumer prices continued to rise in July, indicating a gradual increase in inflation pressures and suggesting further interest rate hikes from the Federal Reserve.

According to the U.S. Labor Department, the Consumer Price Index advanced 0.2 percent, the bulk of which was due to a rise in the cost of shelter. The CPI rose 0.1 percent in June. In the last year through July, the CPI increased 2.9 percent, matching the increase in June.

The so-called Core CPI rose 0.2 percent. The annual increase of the index which excludes the volatile food and energy components, was 2.4 percent, the largest rise since September 2008. Economists polled had forecast both the CPI and core CPI rising 0.2 percent in July.

Geopolitical Events

The Turkish Lira collapsed to an all-time low against the U.S. Dollar Friday even as Turkey’s leader, President Recep Erdogan downplayed the concerns, telling Turks “we have our God.”

The Lira fell more than 18 percent after President Donald Trump authorized the doubling of metals tariffs on Turkey.

Trump’s comment came after Turkish President Erdogan asked citizens to “change the Euros, the Dollars and the gold that you are keeping beneath your pillows into lira,” noting this is “a domestic and national struggle.”

Fear of contagion due to the events in Turkey also triggered a steep break in the Euro on concerns that some Euro Zone banks faced exposure to struggling Turkish banks.

August Seems Hot for the Currency Market, Trump’s Sanctions or Tariffs Spook Emerging Markets Currencies

This August seems hot. Not only temperature but also currency market volatility is rising. The period of active vacations, which is accompanied by a decrease in volumes, this time result in increased volatility. So far we have seen this in the EM currencies that have been subjected to sanctions or tariffs from the United States. However, the British Pound is also in the camp of suffered currencies.

More “hard” Brexit than it was expected earlier causes the weakening of sterling. Since the beginning of August, the British currency has lost more than 2%, dropping below the important level of 1.30 dollar. By the euro, the pound had sunk yesterday to the lowest values since September last year.

On Wednesday, the Russian ruble lost more than 3% on fears of new sanctions from the U.S. and as a result of a sharp drop of oil. The dollar rose to the highest rates in 21 months above 65.5 and completed the summer consolidation period.

Earlier the week, the Turkish lira lost more than 6.5% in a day, rewriting the historical highs to 5.42. Some rollback of the lira was short-lived, and today in the morning it has lost 2.4% and has returned to 5.40.

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The commodities market also cannot boast of the summer lull. Gold at the end of last week dropped to $1204 per ounce, and now stabilized near 1215. The main support factors, in this case, are the demand for protective assets against the Sterling backdrop and EM currencies drop and the extreme oversold of gold in the previous months. The recent report of the World Gold Council has shown a record volume of net short positions on this metal. Often, the excess oversold is a good signal for bulls to start buying. This is also evidenced by the RSI dynamics.

Oil abruptly lost on Wednesday amid the report EIA on the return of shale companies to net positive cash flow, which promises the growth in production, despite the rise in interest rates in the United States. As a result, Brent Crude oil lost more than 3%, fell below $72 at some point. WTI rewrote 2-month lows near $65.80.

It is noteworthy that the weakening of the pound has not caused any pressure on the euro. However, the euro is potentially vulnerable to this topic as investors switch their interest to the regions that are farther from the epicenter of the problems.

The positive dynamics of the euro and the strengthening of the Japanese yen constrain the dollar index from the growth, despite the pound weakness. As a result, DXY Remains near the upper limit of the trading range of the last months, adding 0.1% on Thursday. However, the increased demand for security is likely to allow U.S. currency to demonstrate its strength soon. It is also worth paying attention to the U.S.PPI figures, the acceleration here could give support to the American currency.

This article was written by FxPro

Turkey and Erdogan under Pressure as the Turkish Economy Crumbles

It’s been a torrid time for a number of emerging economies, as the U.S President goes down his list of must-dos and, while the early days of the U.S Presidency saw North Korea, Iran, and China grab most of the headlines, Turkey has not been left unscathed.

The threat of U.S sanctions has riled the global financial markets and sentiment towards the Turkish Lira and 10-year government bonds and like any emerging economy, the exodus from government bonds has led interest rates to 20% this week, as the Turkish government looks to stem the tide of a mass pull out of much needed foreign investment into the country.

Unlike other economies, including Iran, Erdogan is unable to rely on exports alone, with the withdrawal of foreign investment and the threat of sanctions a taster of what could lie ahead for Erdogan, who is coming under increased pressure to release detained U.S pastor Andrew Brunson, the detaining of Brunson the ultimate cause of the threat to hit Turkey with crippling sanctions that could ultimately lead to a possible default on government debt and even worse, a bail out from the IMF that would likely leave Turkey in the wilderness for years.

While Brunson has been held captive since late 2016, the increased intentions of U.S President Trump to deliver on its promise to protect U.S citizens means that while some threats of sanctions may ultimately end up in finding common ground, the U.S President is unlikely to waver and will ultimately deliver on the threat should Brunson not be released.

One wonders whether Brunson is the sole motivation for the U.S administration, with Turkey has become a hotbed for terrorist activities, a number of high profile attacks in recent years have shocked the world, with Erdogan seemingly unable to or unwilling to take the fight to his immediate neighbors.

Thrown into the mix has been Erdogan’s election victory in June that came with new powers, shifting Turkey’s political landscape from one of a democratic parliamentary system to a presidential system, ultimately giving Erdogan total autonomy over what many have begun to consider a rogue nation.

While Erdogan may have suggested that the increased power over the country would ultimately deliver stability, following the 2016 coup attempt, and prosperity, the latest events and Erdogan’s failure to identify signals that have contributed to the current state of affairs will leave many wondering over what lies ahead for the ailing economy.

Year-to-date, the Turkish Lira is down a whopping 40.64% against the U.S Dollar and 10-year government bonds hit record lows earlier in the week, driving yields to 20% before easing back to around 18%.

While a Turkish delegate is on its way to Washington in attempt to appease a situation that could spiral out of control for the Turkish leader and ultimately the economy, the U.S administration may have other intentions, with a request to cut ties with U.S enemy #1 Iran likely to be on the list.

One thing is for certain, Trump will be looking to leave Erdogan in as much isolation as possible to avoid a reprisal down the road and with that in mind, it will be of particular interest to see how the Turkish President can turn things around and draw in foreign investment at an already challenging time.

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The easiest solution would be to snuggle up to the U.S and become a true ally in the Middle East, though the very isolation would certainly rile Erdogan supporters at home and abroad, not to mention, leave the country more exposed than ever to reprisals from Middle East factions that could ultimately kill off what’s left of the Turkish tourist industry, once and for all.

Double-digit inflation, foreign currency debt, a surge in the cost of imports that Turkey depends upon for any goods that it delivers overseas and Erdogan’s unwillingness to allow the Turkish central bank to raise borrowing costs are a combination that paints a bleak picture and these are all before a possible meeting gone wrong in Washington.

Is a Strong Dollar Good for the US Economy?

China, Iran Russia, and Turkey are under Pressure

The threat of sanctions and tariffs from the United States puts pressure on a large part of developing markets. Chinese bourses are under pressure because of the threat of tariff wars. Iran is under threat of imposing sanctions because of the Iranian nuclear programme. Russia is vulnerable because of the suspicion of its interference in the elections. Turkey is under pressure because of the reluctance to release the American pastor. All these threats have already had an extremely negative impact on the business sentiments in the emerging markets, causing capital outflows and national currencies weakening.

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Strong Dollar: Good or Bad?

The big question is whether such strengthening of the US dollar is favorable for the American economy or not. For the long-term distance, the answer is simple – «No».  This is exactly what the President and the U.S. Treasury Secretary have said in the past. Nevertheless, in the short–term the dollar’s growth could help to reduce the US inflationary pressure, avoiding even more abrupt tightening from the Fed. Moreover, it should not be forgotten that the American budget has a huge deficit, and the States actively attract market capital to finance it.

As one of many consequences, the USD receives additional demand due to the flow into the liquid U.S. Treasuries (UST), which is abundantly offered to the markets in order to finance the enormous fiscal deficit.

Coincidence or not, but the effect of the U.S. president’s active economic pressure on other countries is counterbalanced by the effect of the overgrown debt securities offer. As a result of the increased demand for safe-heavens, the yield for 10-years treasuries bond remains close to 3%, reluctant to grow higher, as it was widely expected earlier and despite the Fed Funds rate hikes and acceleration in inflation.

At the same time, strong macroeconomic data of the U.S. economy and company reporting support the positive dynamics of American stock indices. On Monday, S&P 500 added 0.3%, and the index futures add another 0.1% on Tuesday, reducing the gap from January’s historical highs to only 0.9%.

Among individual shares, it is worth noting the growth of Facebook shares. In the recent days, the stocks had stabilized after a collapse and now attract investors who are betting on the rebound after an excessive decline. Taking an important line of 200-day moving average and exiting the oversold zone for RSI also support the bullish sentiment among those investors who look at technical indicators. Twitter shares have not turned to rally yet, but technical indicators demonstrate this possibility.

This article was written by FxPro

Fears of Higher U.S. Rates and Trade Wars Renewed Pressure on Emerging Markets, Turkish Lira Fell to New Historical Low

The US Fed kept its interest rates unchanged and indirectly confirmed the pace for further tightening of the monetary policy. The Fed noted the labor market strengthening, as well as the strong growth in household spending and business investment. The commentary did not provoke any big market reaction as it had expected such an outcome. However, it is worth noting that the probabilities of the hike in December increased. This process provides the dollar with moderate support, it adds the third day in a row and is traded near 94.50 at the time of writing.

Also, the U.S. Dollar was supported by strong employment report from ADP. The company noted an increase in the number of private sector jobs in the U.S. by 219K, which brought back the rate of growth to the strong numbers as it was at the beginning of the year. The dollar index returned to the end of last week, but in general, the developed markets keep the calm tone of trading.

At the same time, Asian bourses restarted their downturn on the new portion of fears around trade wars, amid the increased pressure from the U.S. presidential administration that threatened to raise the tariffs for imports from China up to 25% against 10% earlier. Chinese stocks are losing more than 1% in the morning, quickly returning to the area of one-year lows achieved last month. The Chinese yuan also remains under pressure, trading in the 13-months lows.

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New evidence that Fed sticks to its plan for 4 hikes this year and the “flexibility” of the Bank of Japan with 10-years notes yield have the biggest impact on the emerging markets. The capital outflows from EM may increase due to the interest rates spread failing to the U.S. rates, as well as the fears that trade conflicts would significantly slow the economic growth in the Asian region.

Elsewhere the Turkish lira fell to new historical lows after the reports that the United States had imposed sanctions against Turkish officials who had participated in the detaining of the American pastor. USDTRY rose to 5.0, losing more than a third of its value since the beginning of the year.

This article was written by FxPro

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

Markets Froze Before Trump-Juncker Meeting on International Trade; RUB, TRY Sharply Fell on Tuesday

The US stock markets were marked by Tuesday’s growth in strong earnings reports, which allowed S&P500 to add 0.3% on Tuesday’s results. On Wednesday, by the beginning of Europe session, the futures for S&P index remains near the closing levels of the previous day. It is also worth mentioning the growth of companies’ shares in the agricultural sector thanks to Trump’s pledges to help farmers in case of a full-scale trade war with the EU and China.

Trade wars will be in the spotlight of markets again. The negotiations between Juncker and Trump focusing on international trade issues will be held on Wednesday.

The EURUSD has traded in a narrow range for the second day in a row, remaining close to 1.17 level in anticipation of important comments in the second half of the week. In addition to the meeting of Trump and Juncker, it is also worth highlighting tomorrow’s meeting, where the markets will try to grasp how seriously the central bank estimates the economic damage from already introduced measures and uncertainty around the future tariff policy.

Among the currencies of emerging markets is to highlight yesterday’s weakening of the Russian rouble and the Turkish lira, despite the overall increase in demand for risks. TRY lost more than 4% and returned to the area of historical lows to the dollar after Central Bank of the Republic of Turkey had kept the policy rate at 17.75%. The markets considered this as a strengthening of Erdogan’s power, as he earlier had expressed publicly his preference for a less stringent policy despite inflation.

The Russian rouble lost almost 1.5% last night after Trump’s tweet stating that Russia “will be pushing very hard for the Democrats” in the upcoming elections. These words were perceived by the market as Trump’s willingness to support new sanctions against Russia. Up to these words, the Russian market almost ignored the reports of a new U.S. Senate sanctions package.

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Nor can it be ruled out that the current negotiations may also be of a positive nature. It is very likely that the stakes are high enough and the time has come to negotiate. Yet the main expectations of bidders are that the world’s largest economies can avoid full-fledged trade wars and protectionism.

Significant macroeconomic releases include the publication of sales statistics for new homes in the United States, as well as the reporting of such companies as Facebook and Visa.

This article was written by FxPro