Turkish Boycott
Turkish President Erdogan upheld his allegations that the US attacked his country using economic and monetary means. In order to combat this perceived hostility he doubled tariffs on US imports and even voiced the possibility of a total boycott. As a result of these measures, tariffs on US cars and alcohol rose to 120% and 140% respectively. Yesterday the lira strengthened by 8% following a press conference by the Turkish Minister of Finance held to alleviate investor concerns. The global financial community apprears anxious about the amount of control President Erdogan seems to have over the Central Bank of Turkey as well as the country’s economy. The president has taken steps to weaken the independence of insitutes that make up the pillars of a democracy, in some cases going as far as appointing his relatives to chair them.
Following his victory in the June elections, Turkey has been drifting closer towards becoming a dictatorship and has become increasingly antagonistic towards the United States. The Turkish Army has maintained its operations in Syria, including attacks on Kurdish fighters allied with the US. They’ve also continued the purchase of Russian military equipment, straining the relationship with their NATO allies.
Asia’s Yearly Low
The uncertainty caused by the conflict between two global superpowers as well as Turkey’s ongoing economic crisis prompted Asian investors adopt a more bearish outlook. The Shanghai Composite’s 2% drop and the Hang Seng’s 1.66% decrease shows that investors are more interested looking for other assets. Surprisingly, gold does not seem to be the focus of their interest either, since the asset has been under severe downwards pressure. Today’s trading session put gold below $1200 and other metals such as copper, platinum and silver are not doing any better either. The oil market is also far from its glory days, with WTI approaching $66 and even Brent is hovering around $70, although the decline of North Sea oil is not as severe as its US counterpart.
GBPUSD
The recent interest rate hike did not do the British point any favors. The pound has been on a downwards trajectory ever since the Brexit vote, which helped keep the British economy competitive, however it also accelerated inflation. Reining in this latter side-effect was what motivated the Bank of England to raise interest rates. Conventional trading wisdom dictates that currencies should strengthen following a rate hike and this has proven to be the case looking at the history of the USD for example. The pound on the other hand shows no signs of strengthening, meaning that downwards may be the only way it can go for now.
While there’s still no final, ratified Brexit agreement, yesterday a UK labor market report revealed that workers from EU member states are leaving the country in large numbers. Official estimates claim the number of EU citizens working in the UK dropped by one hundred thousand people in only one month. Previously the UK was the prime target of migration within the European Union, however, this change could spell trouble for the London government.
The Cable’s situation seems equally dire. Price is currently at the center of a well defined downwards trend channel, which leaves it plenty of room for further decline. Meanwhile any and all attempts to move upwards met significant resistance at the 200-period moving average. The 1.3 line used to act as a powerful psychological support. Now that it’s broken, the trend channel seems to be shifting into an even steeper one, suggesting the pounds decline will only accelerate going forward.
EURCHF
The first half of 2018 had traders excited about the pair reaching the coveted 1.2 price level, however, the recent trade war cased the euro to take a hit. As a result, the Swiss franc recovered and reached price levels comparable to the same period last year.
After price moved far away from the 200-day moving average it broke the 1.1370 support line and later stabilized at 1.1263. This recent line has supported price on multiple occasions in 2017, presumably making it powerful enough to require several attempts before it breaks. It’s important to point out that below this line the closest potential support would be the 1.1086 line. If the 1.1263 line were to break, the EURCHF could take a dive. The 200-period moving average has been slowly trailing behind price and only indicates a flat sideways ranging movement so far, even though price already heading downwards. This constellation suggest a potential price correction, which could possibly rebound all the way to 1.1370, reaching the moving average, then continuing on its original downwards path.
Sincerely,
Laszlo | Market Analyst
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