Euro Sells Off on Fragile Emerging Market Rebound - US Market Open

2018-08-14 13:20:00 Justin McQueen

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MARKET DEVELOPMENTS – RELIEF BID IN EMERGING CURRENCIES SPARKS MILD IMPROVEMENT IN SENTIMENT

US equity futures are somewhat calmer this morning with gains of around 0.3% across the board. This has largely come on the back of the relief bid in emerging market currencies as the Turkish Lira climbs over 5% against the USD. However, gains are marginal at best with European equity futures still under pressure, suggesting that the rebound is fragile.

TRY: Relief bid in the Turkish Lira this morning has helped propel emerging market currencies, alongside risk assets higher this morning. USDTRY off some 5% with jitters over Turkey easing slightly. Eyes are on the tensions between the Turkey and the US in which any reports relating to the release of Pastor Brunson could provide a larger bid in the Lira.

Safe Havens (CHF and JPY): Despite the supposed boost in market sentiment, safe haven currencies are relatively firm with EURCHF holding losses of 0.3%, having dipped below the 1.13 handle. Elsewhere, USDJPY has failed to consolidate above the 111.00 level, suggesting a lack of conviction in this risk on sentiment. This is also reflected in the Euro, which is seen as a proxy given the exposure that European banks have with Turkey. The Euro is offered across the board with EURUSD below 1.14 and hovering around intra-day lows of 1.1380.

GBP: The Pound is broadly softer following the latest UK jobs reports. Despite the unemployment rate falling the lowest level since 1975 to 4%, which is below the Bank of England’s NAIRU forecast of 4.25%. The wage components yet again disappointed with the average weekly earnings at 2.4%, below expectations of 2.5%. Consequently, GBPUSD broke back below 1.28, with the mid-1.27s providing some support for now.

CAD: The Canadian Dollar is the outperforming currency in the G10 space with the currency benefiting from the overall improved market sentiment. Alongside this, oil prices have jumped over 1% this morning as oil bulls find hope on an unexpected dip in Saudi oil output of 200kbpd announced in yesterday’s OPEC monthly report.

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IG Client Sentiment Index: EURCHF Chart of the Day

EURCHF: Data shows 68.0% of traders are net-long with the ratio of traders long to short at 2.13 to 1. In fact, traders have remained net-long since May 23 when EURCHF traded near 1.19418; price has moved 5.1% lower since then. The number of traders net-long is 0.5% lower than yesterday and 1.1% higher from last week, while the number of traders net-short is 11.8% higher than yesterday and 7.6% lower from last week.

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

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