We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site.

0

Notifications

Notifications below are based on filters which can be adjusted via Economic and Webinar Calendar pages.

Live Webinar

Live Webinar Events

0

Economic Calendar

Economic Calendar Events

0
Free Trading Guides
EUR/USD
Mixed
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
Oil - US Crude
Mixed
Wall Street
Mixed
Gold
Mixed
GBP/USD
Mixed
USD/JPY
Mixed
More View more
Real Time News
  • The US Dollar is pressured as rising coronavirus cases fail to dent 2021 GDP bets. Could the Singapore Dollar, Indonesian Rupiah, Philippine Peso and Malaysian Ringgit rise? Find out from @ddubrovskyFX here:https://t.co/u1qhaIGGoC https://t.co/JVz5hswMHp
  • Gold Price Outlook: XAU/USD Pullback in Play – Charts to Watch https://www.dailyfx.com/forex/technical/article/fx_technical_weekly/2020/07/11/gold-price-outlook-xau-usd-pullback-in-play-charts-to-watch.html
  • Coronavirus continues to spread rapidly in the US and Latin America causing risk sentiment to falter despite ongoing economic recovery. Get your #currencies update from @HathornSabin here: https://t.co/RCQR6z77qY https://t.co/E2jzemH6bQ
  • The ASX 200 and AUD/JPY are at risk of losses as cases of Covid-19 continue to climb in Victoria, Australia’s second-most populous state. Get your #ASX market update from @DanielGMoss here: https://t.co/O0LNvhgsQo https://t.co/Xq2lDE6s1T
  • Risk performance disparity is front and center while systemic issues meet key event risk. My trading video for the week ahead; '#Dow, $EURUSD, $GBPUSD Breakout Levels and Events Next Week' https://www.dailyfx.com/forex/video/daily_news_report/2020/07/11/Dow-EURUSD-GBPUSD-Breakout-Levels-and-Events-Next-Week.html?ref-author=Kicklighter&QPID=917719&CHID=9 https://t.co/1Fp5OxRbiS
  • This week, EUR/USD rallied to a multi-week high. Will bulls keep leading the price next week? Get your #currencies update from @malkudsi here: https://t.co/zUozw703uC https://t.co/LIEcx52Xh0
  • The New Zealand Dollar is aiming higher, with NZD/USD eyeing fresh yearly highs while AUD/NZD may be carving out a bearish Head and Shoulders chart pattern. Get your $NZDUSD market update from @DanielGMoss here:https://t.co/osFxXvq5xF https://t.co/Uk2RhkEyQO
  • A plethora of UK data, however, external factors remain the key driver as GBP/USD edges towards 200DMA. Get your #currencies update from @JMcQueenFX here: https://t.co/bWJGyiUSpQ https://t.co/qAg8NrAZor
  • The Japanese #Yen may rise if a growing number of coronavirus cases around the world puts a premium on anti-risk assets. JPY’s gains may be amplified if corporate earnings fail to impress investors. Get your #currencies update from @ZabelinDimitri here: https://t.co/yP4revKq6J https://t.co/7smgRKspLU
  • The US Dollar index (DXY) may face range bound conditions over the coming days amid the failed attempt to test the June low (95.75). Get your #currencies update from @DavidJSong here: https://t.co/GsBcE6Z4G6 https://t.co/HIJ4vvcBIg
US-Turkey Standoff Tips Risk Aversion, Force EURUSD Head-and-Shoulders Break

US-Turkey Standoff Tips Risk Aversion, Force EURUSD Head-and-Shoulders Break

2018-08-11 02:16:00
John Kicklighter, Chief Strategist
Share:

Talking Points:

  • Lulled by the 'Summer Doldrums' global markets recieved a risk shock Friday as trouble in Turkey spread across the world
  • Obscuring safe haven roles and financial exposure to the imminent threat, EURUSD earned a critical break to extend its reversal
  • Though full systemic (and lasting) risk aversion is still a high hurdle most markets will revert to their traditional sides

See how retail traders are positioning in the FX majors, indices, gold and oil intraday using the DailyFX speculative positioning data on the sentiment page.

The Summer Quiet is Broken by Fears of Global Fallout from Turkey Pressure

Global financial markets took a troubling tumble to close out this past week. The sudden jolt of volatility came as a surprise for many that had assumed that we had slid into shallow waters of the Summer Doldrums. Up until Friday, the markets were settling into the complacency that returned implied volatility measures (VIX) to lows last seen with 2017's unprecedented extremes and pushed the zombie like climb in risk assets which lifted S&P 500 into striking distance of its record high. What is remarkable both about the climb and the subsequent reversal is the fundamental risks that have accumulated over time. We have faced an overt trade war, general appreciation of over-extended monetary policy and cooling economic growth forecasts; yet none of that would sink capital markets. Yet, the threat of the spillover from Turkey's rapidly deteriorating financial situation seemed to strike a nerve. Further turning the screws on Turkey, US President Donald Trump announced that he was doubling the tariffs on the country's imported steel and aluminum. The Turkish Lira responded with another 15.6 percent drop against the US Dollar to a fresh record low. This time, the impact wouldn't be restricted to the region. Global indices suffered a painful drop that turned into a 0.5 percent gap lower on the open for the S&P 500. The speculative impact was uniform across markets, but where the pain more dramatic than with emerging market currencies. The Lira tallied the most remarkable move on the day; but there were also strong technical moves from the like of high yield, carry trade and risk-leaning commodities among others. This was clearly a true market-wide risk aversion, but the true concern is whether the fire spreads after the weekend.

Scale of 'Risk Trend' Intensity

What's at Stake for the Euro in this Threat to Risk Trends

Each systemic swing in sentiment is unique. The catalysts for the move and the response from the markets differs according to the circumstances. We have yet to establish whether we are at the very beginning of a deep speculative reversal or not, but we can see the implications starting to show through in various currencies. The Euro seems to be one of the most at-risk members of the majors, providing the critical momentum that led EURUSD to a critical technical break of a long-term head-and-shoulders pattern. The connection between the EU and Turkey is made via the heavy investment of the former in the latter. A report from the FT that the ECB has voiced concern over the exposure Europe's banks have to the country helped exacerbate fears. The MSCI's European Financial ETF suffered a painful tumble on the day, spreading up through the regions broader equity indices and into the region's financial markets. Whether or not that was an intentional result by the Trump administration, the President seems to have found a way to pressure Europe despite his recent promise alongside Juncker not to apply additional direct tariffs on the region. Between the indirect effects of Turkey and Iran, the US is exerting remarkable pressure on the European markets and Euro.

Weekly Chart of EURUSD

Dollar Dons a Questionable Safe Haven Status to Force a Key Technical Break

Is the Dollar a genuine safe haven? Does it still follow the lines of a traditional harbor from turmoil that we have ascribed to the currency in past years and decades? The update from the US CPI data showed price pressures were steadily building behind the Fed's hawkish policy lean, but this adds little to the forecast for the Greenback given the long disconnect we have witness between policy bearings and Dollar bearings lately. Yet, when a risk is explicitly raised against the world's second most liquid currency, there are few alternatives robust enough to stand as a full scale haven alternative other than the most liquid: the Greenback. Considering the fundamental leverage for the EURUSD, the trade-weighted DXY Index naturally drove through its own inverse head-and-shoulders 'neckline'. However, the charge was registered against most of the currency's counterparts - with additional progress for remarkable runs like that from GBPUSD and dramatic technical progress as with AUDUSD's drop to 19-month lows. If we are witnessing the opening phase of a large-scale risk aversion, a grind on liquidity would amplify one of the Dollar's key virtues. However, if the tempo does not hit an extreme pace, we will be left to question the particulars behind this currency. One particularly important consideration: what are the long-term implications of the United States' penchant for pursuing tariffs and sanctions against so many trade partners?

Daily Chart of DXY Dollar Index

Fundamental Conflict Between the Pound, Yen and Gold

In the depths of a true financial fire, there is little else we need to evaluate beyond the intensity of fear the exact standing of our target asset in the 'risk' spectrum. However, we have seen sentiment swoon many times before over the years only to stabilize soon after. We should keep tabs on the quality of sentiment and account for competing fundamental themes that will survive this job in investor confidence - if indeed it is passing. From the Japanese Yen, we have seen such a strong upswing that its drive led USDJPY to a loss through the day. In an equally-weighted index, we find the Yen standing at a wide range floor with questions over its true standing as a haven muddled with its performance as a funding currency in carry trade that never really gained true traction. For the Pound, a rise in risk aversion translates into closer evaluation of unique shortcomings. For the Sterling, the growing threat of a 'no deal' Brexit is clearly unnerving investors and British citizens alike. Everything considered, EURGBP is a remarkable pair. Finally, if we are due a true and severe collapse in risk trends, keep gold in the back of your mind. Between capital market deleveraging, the distortion of monetary policy that long ago hit its extreme and the added pressure on currencies from global trade wars; there are few outlets for stability aside from the precious metal. We discuss all of this and more in this weekend Trading Video.

Daily Chart of Equally-Weighted Yen Index

If you want to download my Manic-Crisis calendar, you can find the updated file here.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES

News & Analysis at your fingertips.