USDTRY Eyes Record High, AUD Outperforms Ahead of CPI - US Market Open

2018-07-24 13:31:00 Justin McQueen

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MARKET DEVELOPMENTS – USDTRY EYES RECORD HIGH AS TURKISH CENTRAL BANK DEFIES EXPECTATIONS

US equity futures are firmer this morning (DJIA 0.4%, Nasdaq 100 1%, S&P 500) with outperformance in tech names. This followed the strong earnings update from Alphabet, consequently pushing Nasdaq 100 futures to a fresh record high. Elsewhere, miners are performing well as China looks to adopt a more vigorous fiscal policy to help tackle external uncertainties.

TRY: USDTRY eyes printing a fresh record high after the Turkish Central Bank defied expectations by keeping rates on hold. Consensus was for a 100bps rate hike given persistently high inflation levels and weakening Lira, as such, following the central bank’s decision, USDTRY rose to its highest level since July 11th.

AUD: High beta currencies performing well this morning amid the improvement in risk sentiment. As such, the Australian Dollar is among the best performer ahead the inflation data. Given the improvement seen in New Zealand inflation last week, this could potentially be a leading indicator for the Australian inflation figures, in turn this suggests that risks could be tilted to the upside in the short term. However, the primary trend remains lower, while the increasing correlation with the Yuan suggests that until the Yuan stabilises the Aussie may continue to come under pressure.

EUR: The Euro has been relatively unscathed by the disappointing Eurozone PMI. EURUSD situated around 1.17 with heavy option expiries keeping price action rather static. In terms of the Eurozone PMI survey, the data implied that growth in the Q3 is set to slow to 0.4% from 0.5% in Q3.

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AUDUSD:Data shows 64.6% of traders are net-long with the ratio of traders long to short at 1.83 to 1. In fact, traders have remained net-long since Jun 05 when AUDUSD traded near 0.74996; price has moved 1.3% lower since then. The number of traders net-long is 12.8% higher than yesterday and 0.8% higher from last week, while the number of traders net-short is 18.7% lower than yesterday and 7.7% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests AUDUSD prices may continue to fall. Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger AUDUSD-bearish contrarian trading bias.

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