The week starts with the European majors under pressure as uncertainty surrounding the Lira and Turkey's domestic economy spreads to Europe. The US Dollar remains the destination of choice for investors looking to hedge themselves against the moves seen in the developed and emerging markets' currencies. Equities ended the week deeply under water and this morning futures on both sides of the Atlantic indicate a continuation of the bearish bias.
Starting with the Euro, the shared currency traded to 1.14 on Friday driven by investors' concerns that the deterioration in Turkey's economy will spread to Europe as major banks hold a substantial amount of unhedged loans on the TRY. Erdogan's speeches over the weekend did little to calm down investors as he remains defiant and this morning news that the Turkish central bank implemented measures to improve liquidity is not addressing the main issue which is Lira's decline. Ergodan's unwillingness to raise interest rates suggests that the situation might not be defused soon extending the risk-off sentiment seen across all markets.
The first few days of the week are full of Euro-related data releases and even though Turkey will remain the catalyst behind the price action, the fresh figures will provide further stimulus. The Eurozone and German GDP data and the ZEW Survey pending for release on Tuesday are unlikely to change the direction for the Euro - they could actually make things worse if they print on the bearish side. Prices are attempting to bounce off their lows this morning and they could rally towards 1.1450 but as long as we remain below 1.15, a further slide towards 1.13 looks more likely.
The Pound spent Friday consolidating around the 1.2750 area after a week that saw the currency drop around 250 pips. Brexit is the key driver in the price action and as we keep on reading more and more headlines suggesting that the UK prepares for the eventuality of a “no-deal” Brexit the sentiment remains bearish. The UK labor market report is scheduled for release tomorrow and even though the data is expected to print in a steady manner, it's unlikely to provide any kind of support to Sterling. As long as Cable remains below 1.28 the odds are in favor of a further slide to 1.26.
Commodities are in play this morning with Gold on the defensive while Oil looks to extend Friday's gains. Safe haven-driven demand towards the Dollar is preventing the yellow metal from building any kind of momentum and the sideways action between $1,206 and $1,216 remains our prime scenario. We should wait for a break out of this range to dictate what's next for Gold but for the time being we'll focus on playing the ranges. Oil on the other hand is again trading above $67.50 following news that Iran is ruling out talks with the US; a continuation of the rally could see prices move towards the $70 area.
Equities declined on Friday and this morning the Asian markets are trading deeply in the red. Clearly Turkey's situation is another global risk: even though the country itself has limited ties with the rest of the world, a spreading of the crisis to Europe via its banks' exposure is a major concern. The European and US futures are reflecting investors' worries this morning pointing towards a bearish opening bell.
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All times are GMT +4.
Written by Konstantinos Anthis, Head of Market Research