Market Overview

Toxic Turkish lira can push euro to $1.04

The collapse of the Turkish lira spreads its toxic influence on the European and EM financial markets. Asian bourses have been losing more than 1% at Monday morning amid the increased demand for safe-haven assets. The futures on S&P500 lose 0.1% at the start of Monday trades, falling for the fourth trading session in a row.

In addition, most of the emerging countries’ currencies, including the Mexican peso and the South African rand, are under pressure. The Turkish lira has lost 11% to 7.11 per dollar since the start of trading on Monday, but somewhat stabilized after the country’s Minister of Finance gave an assurance that the government was working on a draft plan to stabilize the situation.

Thus, the epicentre of problems has moved from the Asian region and trade conflicts between the USA and China, the demand for the yen as a currency-haven has again increased. On Monday morning it adds to almost all the most traded currencies, including the dollar.

The technical analysis is on the side of dollar bulls. The dollar index came out of the trading range of the previous four months with a powerful movement, which is a strong signal demonstrating the continued growth of the American currency. The targets for the bulls may be near a psychologically important level of 100, which is about 4% higher than the current mark. It is possible that we can see even more decisive offensive of the American currency.

The common currency was also hit. On Monday morning EURUSD loses 0.2% after a decrease of 1% on Friday. The relationship between the Turkish economy, which goes down the drain following the lira, and the EU financial sector is capable of generating speculation that the ECB can change its plans to raise rates by deferring them to a later date than the summer of 2019. The EURUSD collapse last week could be a serious signal to decrease for the single currency.

It is technically worth paying attention to the “head-and-shoulders” formation. The falling below support line at 1.15 last week marked the overcoming of the “neck line” in this technical figure, which opens the way to the area of the start 2017 lows, near 1.04.

The strengthening of the dollar has only limited impact on the gold. The precious metal dropped by $1208 per ounce from $1217, losing 0.8%, but by now it managed to stay above the recent lows for August at about $1205. Taking this mark can open the way to its deeper immersion. However, it is worth noting that the sale of the gold has lost its momentum, and after the consolidation a reversal to growth can be expected. This growth can be supported not only by the seasonal demand, but also by the investors’ flight from developing markets to safe-heavens.

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