Turkish lira under pressure despite added liquidity from the central bank, Erdogan opposes rate hike, South African rand follows Turkish lira and collapses to records lows
The Turkish Lira remained under pressure despite the central bank adding liquidity. There was more two-way trading, with the TRY 7% lower (USD/TRY 2.9300). However, the contagion was limited to Emerging Market assets and currencies.
The Euro clawed its way back from 13-month lows, closing above 1.1400. Commodities extended their losses. AUD/USD slid 0.35% to 0.7275, worst performer among the Major currencies.
Outlook: While the contagion from the TRY crisis was contained, a certain level of unease still dogs the markets.
Emerging Markets such as India, South Africa and Argentina continued to struggle. USD/ZAR ended 2.6% higher at 14.41 (14.07 yesterday). The Indian Rupee hit an all-time low.
Wall Street and European stocks were 0.4-0.5% lower. The Dollar Index (USD/DXY) is largely unchanged at 96.281 (96.266 yesterday). USD/JPY rallied off its lows at 110.11 to close at 110.70 (110.88 yesterday).
Trading View: If the Turkish Lira crisis drags on or deepens further, it threatens the European economy. The ECB acknowledged that it is concerned about the European Union’s financial exposure to Turkey. Among the major currencies, the Euro is the most vulnerable.
Traders were disappointed that the Turkish Central bank did not hike interest rates to defend the currency. While that option is still available, President Erdogan is against it.
Meantime economic data releases begin today with the Chinese trio of Industrial Production, Retail Sales and Fixed-Asset Investment.
USD/DXY – The Dollar Index closed flat at 96.287 after trading to an overnight high of 95.522. Immediate resistance can be found at 96.50. Immediate support lies at 96.15 (overnight low 96.188). The Dollar Index will take its direction mainly from the Euro and lower summer holiday volumes could well see wide swings continue. Likely range today 95.70-96.70. Look to trade the range, stay out of the middle.
EUR/USD – managed to hold 13-month lows at 1.1365 (overnight low) before rallying to close little-changed at 1.1408 in New York. In the short term, the Euro’s slide looks overextended and we may see a relief rally back toward the 1.1480-1.1500 level. The break of 1.1500 is significant for the Euro which now threatens 1.1200. Let’s not forget that among the Majors, the Euro is the only currency where the speculative community is still long. Today sees German and Euro-Zone Q2 GDP release. Immediate support lies at 1.1430-40 (overnight high 1.1433). Further resistance can be found at 1.1480-1.1500. Immediate support for the EUR can be found at 1.1380 and then 1.1360. Likely range today 1.1360-1.1460. Prefer to buy dips at these levels
AUD/USD – slip-sliding away, the Aussie closed at 0.7275, down 0.35% from 0.7298 yesterday. The Aussie was weighed down by the lower commodity prices (although Copper stabilised) and weakening EM and Asian currencies. The weaker risk environment also pressurised the Australian Dollar. AUD/USD traded to an overnight low of 0.72565. Immediate support can be found at 0.7255/60 and then 0.7220. Immediate resistance lies at 0.7300 and then 0.7330. A positive turn to risk and a rally in the EM currencies will benefit the Aussie most among the Majors. Likely trading range today 0.7260-0.7360. Prefer to buy dips, the bounce could be huge.
USD/JPY – had a good bounce off its lows at 110.109, rallying back to 110.70. The traditional flight-to-safe haven Yen did not exactly play to the weakness in the EM currency space. The yield on the US 10-year bond rose 1 basis point to 2.88%. This morning, USD/JPY opens at 110.65. The unease in the market place on the Turkish situation will keep a lid to the USD/JPY. Immediate resistance lies at 110.90 (overnight high 110.934). The next resistance level is at 111.20. Immediate support can be found at 110.40 and then 110.10. Look to sell rallies with a likely range today of 110.20-111.20.
GBP/USD – finished flat at 1.2764 (1.2767 yesterday). Sterling has remained under pressure for the past few weeks, slipping lower every day. Brexit fears continue to press the Pound. This Thursday, the UK and the European Union resume Brexit negotiations. GBP/USD has immediate support at 1.2730/40 (overnight low traded was 1.2730). Immediate resistance can be found at 1.2790 and then 1.2830. A positive turn to the UK/EU Brexit talks or better UK economic data could see a large Sterling rally. UK Employment Change and Consumer spending are due later today. Likely range today 1.2740-1.2840. Look to buy dips.
USD/ZAR – The meltdown in the Turkish lira is finding its way into other markets with traders positioning for more turmoil for the rand (USD/ZAR). Bloomberg Economics’ emerging-market vulnerability scorecard shows Argentina, Colombia, Mexico and South Africa join Turkey as the weakest links. But with Argentina and Mexico offering higher-than-average risk-adjusted returns, it leaves South Africa and Colombia as the most likely candidates for contagion from Turkey. The rand, which slumped as much as 9.4% during early trading hours when liquidity is thin, was 2.3% weaker at R14.4209 by 12:43 in Johannesburg. It has dropped 7.6% in the past four trading sessions.
Events and economic data releases today: Australia National Australia Bank Business Confidence Index; China July Industrial Production, Retail Sales, Fixed Asset Investment Index; German Preliminary Q2 GDP; German July CPI, ZEW Economic Sentiment Index; Euro-Zone Flash Q2 GDP, Industrial Production, EZ ZEW Economic Sentiment Index; UK July Average Earnings Index, Claimant Count Change.
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