USD and JPY Surge See EUR, TRY and Gold Suffer- US Market Open

2018-08-13 13:20:00 Justin McQueen

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MARKET DEVELOPMENTS – USD AND JPY SOARS VS EUR, TRY AND GOLD

US equity futures relatively lacklustre to begin the week, while European equities continue to remain on the backfoot with banking names feeling the brunt from the continued sell off in the Turkish Lira.

USD: The volatility within the emerging market currencies, most notably the Turkish Lira, which gapped higher to a fresh record low of 7.2, continues to spark a safe haven bid in the USD index. The USD is clear of the 96 handle, with little in the way of resistance till the 98 handle. As result of the gains in the USD index, major FX pairs are suffering as a result with the Euro hitting a 1yr low at 1.1365.

TRY: The main focus for market participants is the Turkish Lira, which gapped lower on reduced optimism that Turkey will look to use traditional measures to support the currency. During the European morning, the Turkish banking regulator announced measures aimed at improving domestic liquidity as opposed to stopping the plunge in the Lira, while the Finance has promised to unveil a plan in order to calm markets.

JPY: Much like the USD, the Japanese Yen has been among the notable beneficiary from the negative sentiment stemming from the sell in EM currencies. USDJPY broke through key support at 110.50, however, focus will be on for a close below 110.50 to confirm a material move lower. Large option expiries of 1.3bln from 110.00-05 keeps the pair underpinned.

Gold: One asset that has lost its safe haven appeal, is gold, which has continued to feel the pressure from the rise in the US Dollar. Subsequently, gold prices dropped below key support at 1200, before finding a bounce back on support at $1195.

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IG Client Sentiment Index: USDJPY Chart of the Day

USDJPY: Data shows 57.8% of traders are net-long with the ratio of traders long to short at 1.37 to 1. In fact, traders have remained net-long since Jul 23 when USDJPY traded near 111.332; price has moved 0.5% lower since then. The number of traders net-long is 1.2% lower than yesterday and 5.9% lower from last week, while the number of traders net-short is 1.9% lower than yesterday and 2.4% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests USDJPY prices may continue to fall. Positioning is more net-long than yesterday but less net-long from last week. The combination of current sentiment and recent changes gives us a further mixed USDJPY trading bias.

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