The Turkish Way
Over the span of one month the US dollar strengthened from 4.84 to 6.97 against the Turkish lira. Turkish President Recep Tayyip Erdogan has blamed the collapse of their national currency on the USA. Turkey has found itself at odds with the Trump administartion on several issues, including questions of Syria, tariffs and the imprisonment of US pastor Andrew Brunson.
Consequences of the lira’s dramatic decline could possibly ripple beyond country itself, since as a member of NATO their economy is closely affiliated with Europe and by extension the global market. Bordering on both Asia and Europe, the country’s geopolitical influence in the Middle East and its dependence on the European Union makes Turkey a potential liability. If they were to suffer an economic crisis, it may lead to a domino effect that could drag down the Balkans and Central Europe along with it. The emerging markets of the region are already suffering from economic tensions, as evidenced by their weakening currencies.
Rising Losses
Following the brief period of rising markets due to all the positive results released during flash report season, stock exchanges are once again back to a bearish trend. The economic effects of recent tariffs and sanctions are just barely starting to show in macroeconomic indicators, however, the ongoing currency crises of Iran, Turkey Argentina and other peripheral countries are a sign of bigger things to come. Today’s Asian trading session was defined by Nikkei and the KOSPI losing approximately 1.5-2%. In comparison, the Hang Seng’s 1.42% decline and the Shanghai Index dropping by 0.35% was a breath of fresh air. London opened 0.7% in the negative today, despite their 2.5% plunge on Friday.
AUDUSD
There’s little hope left for the Aussie. The pair has been on a downwards trend since February, then switched to a ranging sideways movement in June.Due to its length, this could have been seen as a basing period that carried the possibility of a potential upturn. These hopes were cut short this week, when the US started strengthening and broke through the previous 0.7315 low point.
The decline began last Thursday, when price was still hovering near 0.7444. The movement initially seemed to be a minor correction, until it broke through the center of the range, then breached the lower limit a day later. This downwards movement lost some momentum below 0.7315 and even made a few futile attempts to turn around, indicating the closure of several short positions. The trend’s current low is the 0.7265 support line. If it breaks, then according to a projection using Fibonacci retracement levels, 0.7252 could serve as the next line of support. Assuming this is correct, price can still decline beyond current levels after reaching the yellow trendline.
EURGBP
The EURGBP has surprisingly been a bastion of stability for a long time, however, the issue of Brexit as well as the challenges facing both the UK’s and the EU’s economies have made it impossible for it to continue the sideways ranging trend it managed to maintained for much of this year. With its previous channel broken, we can now confidently claim that the euro is on a rising trend, illustrated by the green trendline. The 200-period moving average is rising at the same rate as the trendline, which could be considered a confirmation of the trend.
The 0.9030 price level could be considered the closest line of resistance. The increase has been gradual, jumping 60-70 pips at a time, which suggests that if the line were to break, the next resistance would be found at 0.9100. Last week closed with a large correction that pushed price back from its resistance all the way to the trendline. If we accept the premise of this trendline and the fundamentals behind the euro’s strengthening against the pound, then the current price could open up a potential entry point for a long position.The moving average moving alongside the trendline could act as additional confirmation. In addition, there is a major support line located at 0.8892, meaning that at a risk of 30-40 pips one could envision a potential profit of 110-170 pips based on the chart. This 1 to 5 risk reward ration could be seen as an attractive proposition to many traders.
Sincerely,
Laszlo | Market Analyst
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