Traders in Europe wake up to the Euro dropping to a new yearly low below the 1.15 figure on the back of concerns about Turkey's monetary problems. The Dollar is taking flight after threatening to correct lower earlier in the week, strong gains are seen versus the Euro and the Aussie ahead of the US inflation reading later in the day. Equities were mixed yesterday but Europe will kick off on a negative note with banks expected to take the brunt of the blow.
The Euro is lower this morning as Turkey's problems seem to be spreading to Europe. A report on the Financial Times indicates that the ECB sees BBVA, UniCredit and BNP Paribas as particularly exposed to the Turkish Lira's plunge and traders are looking to limit exposure on the shared currency. The Lira has declined more than 15% versus the Dollar since the start of the month and even though Turkey it's not part of Europe - or the Eurozone for that matter - it's the European banks' exposure on the TRY that lit the fuse this morning.
From a technical perspective, the Euro could go all the way to 1.14 before finding support. The combination of a bearish sentiment coming from Europe and expectations for a positive US CPI reading later in the day weighs down on the shared currency. Euro/Swiss is also on the move and an extension of this morning's losses could drive prices towards the 1.1370 yearly low.
On the flip side, the Dollar shrugged off the weakness seen earlier in the week and now proceeds to new highs almost across the board. The situation with Turkey's economy spreads uncertainty in the broader emerging markets' universe driving flows towards the greenback while the spillover in Europe only makes things better for the Dollar. The Dollar Index bounced off the 95.00 figure yesterday and with the US inflation data pending for release today we may see further extension of the gains until the end of the day.
In the commodities' universe, Gold feels the pressure from the surging Dollar while Oil consolidates near yesterday's lows. The yellow metal is still trading within the narrow range we've seen all week after attempting to break to the upside. Dollar's momentum however wouldn't allow Gold to break higher and now the $1,205 support comes into focus; a penetration of last Friday's lows will expose the $1,200 area. Oil tread water yesterday consolidating around the $67 figure; for momentum to swing back on the bullish side we need a close above the $67.50 resistance, otherwise a deeper correction for Oil will drive prices to the $63 area.
Equities were on a positive run this week but uncertainty on whether Turkey's issues could affect Europe is dampening sentiment this morning. All European markets are expected to open lower today taking their cue from the Asian bourses that are deep in the red at this time. With the ECB having concerns over the European banks' exposure to the Turkish Lira's decline it won't take long for investors to look to hedge themselves against losses for equities on both sides of the pond. The levels to watch on the Dow Jones today are the 25,400 and 25,200 support figures.
MARKET EVENTS TO WATCH
- UK Gross Domestic Product - 12.30pm
- US Consumer Price Index - 4.30pm
All times are GMT +4.
Written by Konstantinos Anthis, Head of Market Research